Global X listed the Global X Interest Rate Hedge ETF (NYSE Arca: IRHG) and the Global X Interest Rate Volatility & Inflation Hedge ETF (NYSE Arca: IRVH) on the New York Stock Exchange on Wednesday.
IRHG seeks to tactically hedge against sharply rising long-term U.S. interest rates while also benefitting during market stress when interest rate volatility rises. The fund is designed to functionally act as if an investor owns a position in long-dated put options on long-term treasury bonds by utilizing payer swaptions.
IRVH, meanwhile, seeks to hedge relative interest rate movements arising from a steepening of the U.S. interest rate curve and to benefit from periods of market stress when interest rate volatility increases, while also providing inflation-protected income. It combines over-the-counter options on the interest rate markets with U.S. Inflation-Protected Treasuries Securities (TIPS) to hedge inflation and interest rate risk.
“Options-based strategies can help to ameliorate the difficult market conditions that investors face in inflationary and rising rate environments. Compared to traditional equity market opportunities, interest rate strategies using options can provide greater diversification and potentially stronger risk-adjusted returns in a rising rate environment” said Rohan Reddy, director of research at Global X, in a news release. “While we continue to see headwinds in the market, IRHG and IRVH combine Global X’s expertise in options-based strategies with active management to offer alternatives for investors looking to diversify or hedge their portfolios against interest rate and inflationary risks.”
With central banks resorting to hawkish monetary policies to control inflationary pressures, the subsequent rise in interest rates is raising costs for companies globally and putting pressure on the broader markets.
When developed central banks increase policy rates due to inflationary pressures, equity and debt markets historically underperform. Interest rate option strategies can be appealing in volatile market environments, as inflationary pressures permeate across the economy.
IRHG and IRVH can act as portfolio hedges in a low-cost manner. For investors looking to diversify or hedge their portfolios against interest rate risk, IRHG seeks to do so by actively managing interest rate risk in an ETF vehicle. IRHG is expected to benefit when long-term interest rates rise or when interest rate volatility is elevated and causes rates to spike. IRVH is designed to help investors benefit from an increase in inflation, as well as interest rate volatility, which may materialize through a steepening yield curve.
“Rising inflation has consistently been a top concern among advisors we surveyed at VettaFi in recent months, and they are interested to learn about ETFs that can help them protect client portfolios,” said Todd Rosenbluth, head of research at VettaFi.
Both IRHG and IRVH have expense ratios of 0.45%.
IRVH and IRHG now bring Global X’s options-based ETF suite to 14 funds totaling over $9.6 billion in assets under management.
In addition, the issuer’s Global X Russell 2000 Covered Call ETF (NYSE Arca: RYLD) now trades on the NYSE Arca exchange. Launched in April 2019, RYLD seeks to generate income through covered call writing, which historically produces higher yields in periods of volatility. Global X originally announced in June its intention to transfer RYLD from the Cboe BZX Exchange to the NYSE Arca on July 1.
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