Tell Interest Rates to Take a Hike With This Hedging ETF | ETF Trends

All eyes are on the Federal Reserve and whether it will continue moving forward with raising rates another 75 basis points in September. Either way, exchange traded fund (ETF) investors have options regardless of how much the Fed raises rates.

In the meantime, the capital markets can only speculate on what the Fed may or may not do, but the general consensus is that rate hikes are certainly on the way. Currently, the CME Group’s FedWatch Tool shows over a 60% probability that another 75 basis points is what the Fed could be targeting.

Only a fly on the wall knows what the Fed could be thinking at its annual economic policy conference in Jackson Hole, Wyoming.

“Federal Reserve officials returning to Grand Teton National Park for the Kansas City Fed’s annual economic symposium on Thursday face one of the most challenging economic backdrops since officials began hosting the event in Jackson Hole, Wyo., in 1982,” a Wall Street Journal report said.

“U.S. inflation is running close to a 40-year high, while unemployment is at half-century lows. Global economies are reeling from the effect of multiple shocks—the coronavirus pandemic, a massive fiscal and monetary policy response, and the fallout from Russia’s war in Ukraine,” the report added, noting that the central bank will have to walk a proverbial tightrope when it comes to raising rates without spinning the economy into recession.

An ETF With a Built-In Hedging Component

There are various ways that investors can hedge effectively against interest rates, but there’s an easier way than holding several positions and/or combining various strategies. One exchange traded fund (ETF) essentially does it all by having a built-in hedging component: the Global X Interest Rate Volatility & Inflation Hedge ETF (IRVH).

IRVH 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. Treasury inflation-protected securities (TIPS) to hedge inflation and interest rate risk.

Highlights of IRVH:

  • Efficient hedge: By pairing TIPS with over-the-counter (OTC) interest rate options, IRVH offers investors the ability to potentially hedge against inflation and benefit from falling short-term interest rates and/or rising long-term interest rates.
  • Portfolio diversifier: IRVH is expected to exhibit low correlation with equity, real estate, and fixed income markets, making it a potential diversifier within a broader portfolio.
  • Monthly distributions: IRVH expects to make monthly distributions with the potential for inflation-protected income.

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