An Active Bond ETF That's Ready For Higher Rates

Fixed income investors have been scrambling to adapt their portfolios to a changing environment as the Federal Reserve embarks on a tighter monetary policy in response to an expanding economy and rising inflation expectations. Exchange traded fund investors, though, can consider an actively managed bond strategy that is positioned to hedge the risks while providing steady returns.

For example, the actively managed Fidelity Limited Term Bond ETF (NYSEArca: FLTB) may help investors shift down the yield curve to short-term debt as a way to diminish the negative effects of inflation and hedge against interest rate risks.

“When it comes to our fund, we actually think higher rates are a good thing as we are able to reinvest at higher yields,” Rob Galusza, portfolio manager in the Fixed Income division at Fidelity, told ETF Trends in a call.

Galusza explained that FLTB has a focus on spread products, primarily corporate bonds that provide a yield premium over Treasuries securities. Consequently, the income advantage is what Fidelity’s management team is trying to use to outperform inflation.

“While we have been in a low-interest rate environment, we would expect short-term bond funds to provide returns that keep up with the purchasing power for shareholders as we return to a more normalized interest rate environment,” Galusza said.

FLTB is a short, intermediate corporate bond-focused portfolio primarily comprised of investment-grade debt securities, with a benchmark that is 1-5 year government debt, which has an effective duration of about 2.6 years and a 30-day SEC yield of 1.83%.