U.S. stocks have been struggling this year due to Russia’s invasion of Ukraine, aggressive rate hikes by the Fed and global growth concerns. In fact, all the major indices are in deep red with the S&P 500 and the tech-heavy Nasdaq Composite Index in bear market. The Dow Jones Industrial Average managed to survive the downtrend.
While most of the corners are being beaten badly, a few are thriving and scaling new 52-week highs. ETFs like SPDR Bloomberg 1-3 Month T-Bill ETF ( BIL Quick Quote BIL - Free Report) , Invesco DB US Dollar Index Bullish Fund ( UUP Quick Quote UUP - Free Report) , iShares Treasury Floating Rate Bond ETF ( TFLO Quick Quote TFLO - Free Report) , iMGP DBi Managed Futures Strategy ETF ( DBMF Quick Quote DBMF - Free Report) and Invesco VRDO Tax-Free ETF ( PVI Quick Quote PVI - Free Report) have been the leaders amid the market turmoil. Market Trends
The stock market slump accelerated last week when the Fed Chair Jerome Powell raised interest rates by another 75 bps. This marks the third consecutive rate hike of 0.75% and pushed the benchmark interest rate to 3.0-3.25%, the highest level since 2008. The central bank also signaled that additional large rate hikes were likely at upcoming meetings as it combats inflation that remains near a 40-year high (read:
ETFs That Won After Fed Rate Hike). Fed officials now expect the federal funds rate at a range of 4.25% to 4.5%, a full percentage point above the 3.25% to 3.5% projected in June to end 2022. This means that the central bank could approve another three-quarter point hike at its November meeting and then a half-point rate rise in December. Economists warned that the rapid tightening would hurt the labor and the housing, thereby pushing the economy into recession and impact the stock market. Meanwhile, the yield on 10-year Treasury notes jumped to a high of 3.64% last week, its highest level since February 2011, while the 2-year yield topped 4.1%, its highest level since 2007. As yields rise, returns of investors having big holdings in the fixed-income world are hurt. As such, bond investors might experience heavy losses given that bond prices and yields have an inverse relationship. SPDR Bloomberg 1-3 Month T-Bill ETF ( BIL Quick Quote BIL - Free Report) – 52-Week High: $91.56 Ultra-short bond ETFs invest in securities with durations of less than one year, thus making them less vulnerable to rising rates. As the duration or interest rate sensitivity is lower, these act as a cushion to rising rates. SPDR Bloomberg 1-3 Month T-Bill ETF seeks to provide exposure to zero-coupon U.S. Treasury securities with a remaining maturity of 1-3 months. It follows the Bloomberg 1-3 Month U.S. Treasury Bill Index, holding 15 securities in its basket. Both average maturity and adjusted duration come in at 0.09 years each (read: Ultra-Short Bond ETFs to Hedge Against Rising Rates). SPDR Bloomberg 1-3 Month T-Bill ETF has AUM of $21.4 billion and an average daily volume of 5.2 million shares. It charges 14 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Invesco DB US Dollar Index Bullish Fund ( UUP Quick Quote UUP - Free Report) – 52-Week High: $30.37 Rising interest rates will pull in more capital into the country and lead to an appreciation of the U.S. dollar. Invesco DB US Dollar Index Bullish Fund is the prime beneficiary of a rising dollar as it offers exposure against a basket of six world currencies — euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. This is done by tracking the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. Invesco DB US Dollar Index Bullish Fund has so far managed an asset base of $2 billion while seeing an average daily volume of around 4 million shares. It charges 77 bps in total fees and expenses and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. iShares Treasury Floating Rate Bond ETF ( TFLO Quick Quote TFLO - Free Report) – 52-Week High: $50.49 Floating rate bonds are investment grade and do not pay a fixed rate to investors. However, these have variable coupon rates that are often tied to an underlying index (such as LIBOR) plus a variable spread depending on the credit risk of the issuers. Unlike fixed-coupon bonds, these do not lose value when the rates go up, making the bonds ideal for protecting investors against capital erosion in a rising rate environment. iShares Treasury Floating Rate Bond ETF follows the Bloomberg US Floating Rate Note < 5 Years Index and holds 8 securities in its basket. It has an average maturity of 0.58 years and an effective duration of 0.01 years. iShares Treasury Floating Rate Bond ETF has amassed $3 billion in its asset base while trading in volume of 853,000 shares per day on average. It charges 15 bps in annual fees. iMGP DBi Managed Futures Strategy ETF ( DBMF Quick Quote DBMF - Free Report) – 52-Week High: $33.95 Hedge volatility ETFs like DBMF could prove beneficial amid market uncertainty. Investors should note that these funds have the potential to stand out and outperform simple vanilla funds in case of rising volatility. iMGP DBi Managed Futures Strategy ETF seeks long-term capital appreciation. It will employ long and short positions in derivatives, primarily futures contracts and forward contracts, across the broad asset classes of equities, fixed income, currencies and commodities. iMGP DBi Managed Futures Strategy ETF has AUM of $788 million and charges 85 bps in annual fees. It trades in a moderate volume of 472,000 shares a day on average (read: Hedge Volatility With These ETFs). Invesco VRDO Tax-Free ETF ( PVI Quick Quote PVI - Free Report) – 52-Week High: $25.02 Again, this ETF is a beneficiary of rising rates. Invesco VRDO Tax-Free ETF follows the ICE US Municipal AMT-Free VRDO Constrained Index, which tracks the performance of U.S. dollar tax-exempt VRDOs that are publicly issued by U.S. states and territories, and their political subdivisions, and that have interest rates that reset daily, weekly or monthly. Invesco VRDO Tax-Free ETF has AUM of $66 million and charges 25 bps in annual fees. It trades in an average daily volume of 8,000 shares.