“We do expect interest rates to rise, albeit at a very slow pace as U.S. and eurozone monetary policies gradually normalize,” the strategists added. “We favor stocks overall, but advocate strategic allocations to government bonds including TIPS for diversification purposes.”
Related: Often Overlooked Indirect Cost of ETF Investments
For example, ETF investors can target various U.S. government bonds with varying maturities through options like the iShares 1-3 Year Treasury Bond ETF (NYSEArca: SHY), iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) and iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT).
Additionally, something like the iShares TIPS Bond ETF (NYSEArca: TIP) would be a good play on TIPS. TIPS are a type of Treasury security that is indexed to inflation as a way to shield investors from the negative effects of inflation. The securities’ par value rises with inflation as measured by the Consumer Price Index while interest rate remains fixed. TIPS also offer investors another layer of diversification as many aggregate bond funds exclude TIPS from their holdings.
For more information on the fixed-income market, visit our bond ETFs category.