Potential traders, though, should be aware of the risks associated with these geared products and keep in mind that leveraged and inverse ETFs are designed to produce their target strategies on a daily basis. Consequently, when investors look at the long-term performance of a leveraged or inverse ETF, people may notice that the funds do not perfectly reflect their intended strategies.
Furthermore, fixed-income investors may consider the relatively new interest-rate hedged bond ETF theme as a way to gain long exposure to debt securities and generate a steady income stream while hedging against the negative effects of rising rates.
Investors do not need to sacrifice yields to diminish rate risk. The group of interest rate-hedged or zero duration ETFs hold long-term bonds but also simultaneously short Treasuries or Treasury futures contracts to hedge against potential losses if interest rates rise. Due to their near-zero durations, the rate-hedged bond funds should show little to no sensitivity to changes in interest rates. These types of hedged-bond ETFs could provide suitable exposure to the fixed-income market in a rising interest environment ahead.
Investors who are interested in the rate-hedged bond strategy have a number of other ETF options available, including Deutsche X-trackers Investment Grade Bond – Interest Rate Hedged ETF (NYSEARCA: IGIH), iShares Interest Rate Hedged Corporate Bond ETF (NYSEARCA: LQDH), VanEck Vectors Treasury-Hedged High Yield Bond ETF (NYSEARCA: THHY), ProShares Investment Grade-Interest Rate Hedged ETF (BATS: IGHG) and WisdomTree Barclays U.S. Aggregate Bond Zero Duration Fund (NYSEARCA: AGZD), among others.