“For a long time, we had an ideal environment for stocks: low inflation and low interest rates. That’s an incredibly benign backdrop and I don’t want it to lull you into a false sense of security about the dangers of a big spike in rates. That’s why you have to watch the bond market.”
That being said, here are three fixed-income ETFs to watch that Cramer and would-be bond investors would not find boring.
1. ProShares High Yield—Interest Rate Hdgd (BATS: HYHG)
HYHG tracks the performance of the Citi High Yield (Treasury Rate-Hedged) Index and allocates 80% of its total assets in high-yield bonds and short positions in Treasury Securities in order hedge against rising rates. Because HYHG invests in high-yield bonds, there is credit risk associated with the higher yield since the fund invests in corporate issues that are less than investment-grade. By targeting a duration of zero, HYHG offers less interest rate sensitivity versus short-term bonds. According to Yahoo! Finance performance numbers, HYGH has been generating returns of 1.76% year-to-date, 3.12% the last 12 months and 3.07% the last three years.
2. iShares 0-5 Year High Yield Corp Bd ETF (NYSEArca: SHYG)
SHYG seeks to track the investment results of the Markit iBoxx® USD Liquid High Yield 0-5 Index composed of U.S. dollar-denominated, high yield corporate bonds with maturities of less than five years–the shorter durations help to decrease exposure, helping to mitigate credit risk. SHYG invests at least 90% of its total assets in the component securities of the index, primarily high yield corporate debt, and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents. SHYG has returned 1.13% year-to-date, 2.86% the last year and 4.14% the past three years based on Yahoo! performance numbers.
3. SPDR Blmbg Barclays Inv Grd Flt Rt ETF (NYSEArca: FLRN)
FLRN seeks to provide investment results that correlate with the price and yield performance of the Bloomberg Barclays U.S. Dollar Floating Rate Note < 5 Years Index. Like SHYG, FLRN limits duration exposure with investments in debt securities with maturities that don’t exceed five years. In addition, at least 80% of its assets will be allocated towards securities comprising the index, such as U.S. dollar-denominated, investment grade floating rate notes. The floating rate allows investors to capitalize on any short-term interest rate adjustments made by the Federal Reserve that are in accordance with their monetary policy. Furthermore, the investment-grade issuers will be less likely to default versus non-investment-grade. Based on Yahoo! performance numbers, FLRN has generated a 1.06% return year-to-date, 1.95% the past year and 1.42% within the last three years.
For more trends in the fixed-income ETF market, visit the Fixed Income Channel.