Fixed-income investors who are worried about today’s rising rate environment can consider lower duration ETF strategies to mitigate the risks.
On the recent webcast, Analyzing Short-Duration Strategies for Rising Rates, Samantha Azzarello, Vice President, Global Market Strategist, J.P. Morgan Asset Management, outlined the current extended bull market, which is entering its late stages with the Federal Reserve embarking on interest rate normalization. Looking ahead, both the FOMC and the market anticipate rising fed fund rates ahead. The FOMC year end estimates a 2.38% rate by the end of 2018 and a 3.13% rate by the end of 2019 while the market projects a 2.26% rate by the end of 2018 and a 2.83% by 2019.
As rates rise, traditional fixed-income exposures have become more risky and investors are not receiving the right remuneration for this higher risk exposure. Azzarello pointed out that the benchmark Bloomberg Barclays U.S. Aggregate Bond Index showed a 3.46% yield and a 6.0 year duration ended September 2018, compared to the benchmark’s average 5.11% yield and a 4.8 year duration.
Alternatively, AJ Nobile, Vice President, Investment Specialist, J.P. Morgan Asset Management, argued that something like the actively managed JPMorgan Ultra-Short Income ETF (JPST) can help investors move down the yield curve to diminish rate risk while but still generate attractive yields.