An ETF Strategy to Generate Yields, Remove Rate Risk

Fixed-income investors are worried that their bond funds may take a hit in a rising interest rate environment. However, one can turn to a rate-hedged bond ETF strategy that aims to eliminate interest rate risk all together and focus on helping investors achieve their target income generation.

“We like to think of ourselves as the leader of fixed-income solutions that give investors options to stay invested in fixed-income markets, earn an attractive level of yield but hedge out the duration risk,” Kieran Kirwan, Director of Investment Strategies at ProShares, said at the 2018 Morningstar Investment Conference.

Specifically, the ProShares Investment Grade-Interest Rate Hedged ETF (BATS: IGHG) and ProShares High Yield Interest Rate Hedged ETF (BATS: HYHG) are two rate hedged ETF strategies that try to eliminate the rising rate risks. IGHG shows a -0.07 year net effective duration and a 4.09% 30-day SEC yield while HYHG has a -0.10 year duration and a 6.13% 30-day SEC yield.