Rising Rates Haven't Hampered Stock ETFs

The Federal Reserve has hiked interest rates two times this year and plans another two more in the second half. Under the backdrop of a rising rate environment, stock exchange traded fund investors may have to closely monitor certain areas of the market, but overall, higher rates typically correspond with bustling bull market conditions.

Looking at the year-to-date sums of daily equity returns on days when the 10-year yield rose and days when it fell, there is a clear pattern that shows on days when the yield rose, equities tended to rise as well and vice versa on days when the yield fell, Tom Goodwin, senior research director for FTSE Russell, said in a research note.

When yields on Treasuries were moving higher, U.S. equity as represented by the FTSE Russell 1000 tended to outperform both international and emerging market stocks. The iShares Russell 1000 ETF (NYSEArca: IWB) increased 3.0% year-to-date.

The small-cap category would outperform, followed by micro-caps, mega-caps and mid-caps during periods when the 10-year Treasury yields rose. The iShares Russell 2000 ETF (NYSEArca: IWM) gained 8.4% so far this year.

Lastly, looking at investment styles, the Russell 2000 defensive, Russell 1000 defensive and Russell 2000 growth categories were among the best performers when yields on benchmark Treasuries rose.