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7 ETFs That Welcome a Fed Rate Hike

7 ETFs That Welcome a Fed Rate Hike

(Dollar Photo Club)

By    |   Thursday, 15 September 2016 08:20 AM

 

 

Despite all the fear and loathing of a Federal Reserve interest-rate hike, there are market segments and exchange traded funds that welcome higher rates.

“The higher interest rates may have a dampening effect on the markets, but some market segments may flourish on the shift in monetary policies,” ETFtrends.com’s Tom Lydon explained to Fox Business Network.

“For instance, an interest rate hike would diminish access to easy money or reduce the supply of U.S. dollars sloshing around in the global economy, which would help strengthen the greenback,” he wrote.

“Consequently, U.S. dollar-related ETFs could outperform. Investors who are bullish on the greenback can gain exposure to U.S. dollar moves through the PowerShares DB U.S. Dollar Index Bullish Fund (UUP), which tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc,” he wrote.

 

“The actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU) tracks the dollar against a broader group of developed and emerging market currencies in an attempt to outperform the Bloomberg Dollar Total Return Index,” he wrote.

Fixed-income funds typically underperform as rates rise since the newer debt securities come with more attractive yields, which make older debt obligations with lower yields less attractive, he explained. “However, hedged bond ETFs that take short exposure in Treasury bonds to achieve a zero duration could outperform non-hedged bond ETFs - a zero duration would reflect the fund's little to no sensitivity to changes in interest rates,” he wrote.

He cited some options for fixed-income investors to maintain their bond exposure while hedging against rising interest rates:

  • the Deutsche X-trackers Investment Grade Bond – Interest Rate Hedged ETF (IGIH)
  • iShares Interest Rate Hedged Corporate Bond ETF (LQDH)
  • Market Vectors Treasury-Hedged High Yield Bond ETF (THHY)
  • ProShares Investment Grade-Interest Rate Hedged ETF (BATS)
  • WisdomTree Barclays U.S. Aggregate Bond Zero Duration Fund (AGZD)


And such preparation is exactly what savvy investors should be doing before the central bank starts hiking rates, advises Newsmax Financial Insider Hans Parisis.

“Any Fed rate hike, as small as it possibly could be and whenever that comes, will probably disturb many financial markets in expected as well as unexpected places,” Parisis predicted.

“Yes, savvy investors better be prepared for it!”

(Newsmax wire services contributed to this report).

© 2021 Newsmax Finance. All rights reserved.


InvestingAnalysis
Despite all the fear and loathing of a Federal Reserve interest-rate hike, there are market segments and exchange traded funds that welcome higher rates.
etf, fed, rate hike, investors
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2016-20-15
Thursday, 15 September 2016 08:20 AM
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