The Sit Rising Rate ETF (NYSEArca: RISE) brings an institutional-level interest rate hedging strategy to everyday investors. With many fixed income investors concerned about the effects of higher interest rates, RISE could be an ideal ETF for a rising rate environment.
The Sit Rising Rate ETF is designed to capitalize on rising rates by holding derivative hedges tied to two-, five- and 10-year U.S. Treasuries.
The weighting of the Treasury Instruments constituting the Benchmark Portfolio Index will be based on each maturity’s duration contribution. The expected range for the duration weighted percentage of the 2 year and 5 year maturity Treasury Instruments will be from 30% to 70%. Additionally, the expected range for the duration weighted percentage of the 10 year maturity Treasury Instruments will be from 5% to 25%, according to Rise.
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The interest rate ETF tries to achieve a negative duration through its short Treasury positions to hedge against potential losses if interest rates rise – bond prices have an inverse relationship to interest rates, so rising rates corresponds with falling bond prices.
Consequently, investors may find that the negative duration ETF tries to profit off a rising rate environment by heavily using short contracts to capitalize on falling bond prices if rates do rise. However, due to the more aggressive nature of this strategy, these types of ETFs will underperform if rates fall.
For more information on the fixed-income market, visit our bond ETFs category.