Institutional investor worried about the looming wrath of the Fed? You’re not alone — a survey of U.S. institutional investors conducted by CoreData Research recently found that 50 percent of institutionals are worried that higher rates may lead to significant withdrawals of major sources of liquidity. Big time allocators are not alone in having those concerns, and may want to look at how fixed income ETFs for institutionals can be a solid option in navigating rate risk.
Institutions are increasingly using ETFs thanks to their ability to help maintain a strong liquidity profile as well as their versatility, serving as building blocks towards the specific set of exposures they’re trying to find. That increased use of the ETF wrapper has opened up a world of fixed income ETFs for institutionals, with the income back in fixed income inviting a deeper lock at the variety of available bond strategies in the wrapper.
With markets now seeing as many as three rate hikes from the Fed this year, if not more, due to hotter than expected economic data and an inflation rate that hasn’t cooled as much as the Fed wanted to see, a U.S. Treasury floating rate note (FRN) strategy like the WisdomTree Floating Rate Treasury Fund (USFR) remains a key play in a rising rate environment.
USFR charges 15 basis points for exposure to rolling two-year FRNs, a steady-yielding place to invest, and has outperformed its ETF Database Category Average and its Factset Segment Average over the last three months, and has added an impressive $1.4 billion in net inflows in that time.
In addition to USFR is the WisdomTree Interest Rate Hedged High Yield Bond Fund (HYZD) which invests in corporate bonds for favorable cash flow, income, and valuation with a n interest-rate-hedge overlay, shorting Treasury futures to achieve a net-zero portfolio duration. HYZD charges a 43 basis point fee and has outperformed its averages YTD, returning 2.4% since the start of the year.
A final strategy to check out may be the WisdomTree Yield Enhanced U.S. Aggregate Bond Fund (AGGY) which charges 12 basis points to track the Bloomberg US Aggregate Yield Enhanced Index. AGGY brings a sector rotation approach to the aggregate U.S. investment-grade space to maximize yield, outperforming its Factset Segment Average YTD and adding $4.3 million over the last month.
There are all sorts of options out there in ETFs for those looking to navigate volatility right now, like the aforementioned fixed income ETFs and dividends, too. The trio of fixed income ETFs available from WisdomTree can be a good place to start for big allocators looking for a diverse set of rising rate plays.
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