There are increasing doubts regarding the Federal Reserve’s plans for more interest rate increases this year, but fixed income investors should still consider preparation for surprise rate hikes.

An effective way of preparing for interest rate hikes while still generating income from bonds is with exchange traded funds that are specifically designed to hedge interest rate risk. One of the more notable options among interest rate hedged ETFs is the ProShares Investment Grade-Interest Rate Hedged ETF (BATS: IGHG).

IGHG tracks the Citi Corporate Investment Grade Treasury Rate Hedged Index, which provides exposure to a diversified portfolio of investment-grade long-term bonds with a built-in interest rate hedge. The ETF will maintain full exposure to credit risk as a source of return while simultaneously incorporating a hedge to alleviate the impact of rising rates.

One issue investors should be mindful of with IGHG and other interest rate hedge products is that these funds often behave more like stocks than do traditional fixed income strategies.

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