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Interest Rate Hedge ETFs in Focus Post Fed Minutes
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Interest rate hedge ETFs are back in vogue following the Fed minutes and upbeat manufacturing data, both of which highlight concerns over stubborn inflation. This has again pushed back the timing of rate cuts.
While inflation has eased over the past year, it failed to show further progress toward the Fed’s 2% objective in recent months, per the Fed minutes. As such, the disinflation process would likely take longer than previously thought (read: AI & Fed Driving Stock Market? ETFs to Bet On).
Further, the latest upbeat data on services and manufacturing also cut the odds of a rate cut in September. The S&P Global Flash US PMI Composite Output Index rose sharply to 54.4 in May from 51.3 in April. U.S. business activity growth accelerated sharply to its fastest pace in more than two years in May after two months of slower growth led by an upturn in the service sector. The data indicates that the U.S. economy is back on course for another solid GDP gain in the second quarter. The strength in the economy could spark a revival in inflation.
According to the CME FedWatch Tool, traders are currently pricing in just a 51% chance that the Fed will cut rates in its September meeting, down from 58% a day ago and nearly 68% in the prior week.
Higher rates have made borrowing expensive, pushing up the cost of buying a new car or house and increasing the cost of carrying credit card debt. In such a scenario, interest rate hedge ETFs seem a compelling option. These funds are designed to help investors mitigate the risk associated with fluctuating interest rates. These ETFs typically aim to protect investors from potential losses due to rising or falling interest rates by using various strategies and financial instruments. We have highlighted a few of them in detail below:
Simplify Interest Rate Hedge ETF is the first ETF providing a simple, direct and transparent interest rate hedge. It seeks to provide a hedge against a sharp increase in long-term interest rates and benefit from market stress when fixed-income volatility increases while providing the potential for income.
Simplify Interest Rate Hedge ETF holds a large position in over-the-counter interest rate options intended to provide a direct and transparent convex exposure to large upward moves in interest rates and interest rate volatility. It invests in long-dated put options on 20-year US Treasury bonds to offer the most liquid and the most cost-efficient way of getting interest rate protection. PFIX has accumulated $145.2 million in its asset base and trades in an average daily volume of 104,000 shares. It charges 50 bps in annual fees.
Global X Interest Rate Hedge ETF is an actively managed fund that seeks to provide a hedge against sharp increases in long-term U.S. interest rates and is expected to benefit during periods of market stress when interest rate volatility is elevated. It seeks to achieve its investment objective primarily by investing in long interest rate swap options and long positions in short-term U.S. Treasury securities (read: ETFs to Bet on Analysts' Bullish Forecast for S&P 500).
Global X Interest Rate Hedge ETF has amassed $2.1 million in its asset base and trades in average daily volume of 2,000 shares. It charges 50 bps in fees per year.
Interest Rate Volatility & Inflation Hedge ETF is an actively managed ETF designed to offer investors inflation-protected income potential while also potentially benefiting from a steepening of the yield curve and an increase in interest rate volatility. IRVH seeks to achieve its investment objective by primarily investing in, directly or indirectly, a mix of TIPS and interest rate options on the shape of the yield curve.
Interest Rate Volatility & Inflation Hedge ETF has accumulated $1.6 million in its asset base while charging 50 bps in fees per year from investors. It trades in an average daily volume of 2,000 shares.
Image: Bigstock
Interest Rate Hedge ETFs in Focus Post Fed Minutes
Interest rate hedge ETFs are back in vogue following the Fed minutes and upbeat manufacturing data, both of which highlight concerns over stubborn inflation. This has again pushed back the timing of rate cuts.
While inflation has eased over the past year, it failed to show further progress toward the Fed’s 2% objective in recent months, per the Fed minutes. As such, the disinflation process would likely take longer than previously thought (read: AI & Fed Driving Stock Market? ETFs to Bet On).
Further, the latest upbeat data on services and manufacturing also cut the odds of a rate cut in September. The S&P Global Flash US PMI Composite Output Index rose sharply to 54.4 in May from 51.3 in April. U.S. business activity growth accelerated sharply to its fastest pace in more than two years in May after two months of slower growth led by an upturn in the service sector. The data indicates that the U.S. economy is back on course for another solid GDP gain in the second quarter. The strength in the economy could spark a revival in inflation.
According to the CME FedWatch Tool, traders are currently pricing in just a 51% chance that the Fed will cut rates in its September meeting, down from 58% a day ago and nearly 68% in the prior week.
Higher rates have made borrowing expensive, pushing up the cost of buying a new car or house and increasing the cost of carrying credit card debt. In such a scenario, interest rate hedge ETFs seem a compelling option. These funds are designed to help investors mitigate the risk associated with fluctuating interest rates. These ETFs typically aim to protect investors from potential losses due to rising or falling interest rates by using various strategies and financial instruments. We have highlighted a few of them in detail below:
Simplify Interest Rate Hedge ETF (PFIX - Free Report)
Simplify Interest Rate Hedge ETF is the first ETF providing a simple, direct and transparent interest rate hedge. It seeks to provide a hedge against a sharp increase in long-term interest rates and benefit from market stress when fixed-income volatility increases while providing the potential for income.
Simplify Interest Rate Hedge ETF holds a large position in over-the-counter interest rate options intended to provide a direct and transparent convex exposure to large upward moves in interest rates and interest rate volatility. It invests in long-dated put options on 20-year US Treasury bonds to offer the most liquid and the most cost-efficient way of getting interest rate protection. PFIX has accumulated $145.2 million in its asset base and trades in an average daily volume of 104,000 shares. It charges 50 bps in annual fees.
Global X Interest Rate Hedge ETF (RATE - Free Report)
Global X Interest Rate Hedge ETF is an actively managed fund that seeks to provide a hedge against sharp increases in long-term U.S. interest rates and is expected to benefit during periods of market stress when interest rate volatility is elevated. It seeks to achieve its investment objective primarily by investing in long interest rate swap options and long positions in short-term U.S. Treasury securities (read: ETFs to Bet on Analysts' Bullish Forecast for S&P 500).
Global X Interest Rate Hedge ETF has amassed $2.1 million in its asset base and trades in average daily volume of 2,000 shares. It charges 50 bps in fees per year.
Interest Rate Volatility & Inflation Hedge ETF (IRVH - Free Report)
Interest Rate Volatility & Inflation Hedge ETF is an actively managed ETF designed to offer investors inflation-protected income potential while also potentially benefiting from a steepening of the yield curve and an increase in interest rate volatility. IRVH seeks to achieve its investment objective by primarily investing in, directly or indirectly, a mix of TIPS and interest rate options on the shape of the yield curve.
Interest Rate Volatility & Inflation Hedge ETF has accumulated $1.6 million in its asset base while charging 50 bps in fees per year from investors. It trades in an average daily volume of 2,000 shares.