Tell interest rates to hike with this hedging ETF
All eyes are on the Federal Reserve and whether it will continue to raise 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, capital markets can only speculate on what the Fed might or might not do, but the general consensus is that rate hikes are definitely on their way. Currently, the CME group FedWatch tooIt shows a greater than 60% chance that an additional 75 basis points is what the Fed might be aiming for.
Only a fly on the wall knows what the Fed might 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 difficult economic contexts since officials began staging the event in Jackson Hole, Wyoming, in 1982, “a Wall Street Journal report said.
“Inflation in the United States is near its highest level in 40 years, while unemployment is at its lowest level in half a century. Global economies are reeling from the effect of multiple shocks – the coronavirus pandemic, a massive fiscal and monetary policy response, and the fallout from the Russian war in Ukraine,” the report added, noting that the central bank will have to walk a proverbial tightrope when it comes to raise rates without dragging the economy into recession.
An ETF with an integrated hedging component
There are different ways for investors to effectively hedge against interest rates, but there is an easier way than holding multiple positions and/or combining various strategies. An exchange-traded fund (ETF) essentially does all of this by having a built-in hedging component: the Global X Interest Rate Volatility and Inflation Hedge ETF (IRVH).
The IRVH seeks to hedge relative interest rate movements resulting from a steepening of the U.S. yield curve and to take advantage of periods of market stress when interest rate volatility increases, while providing an inflation-protected income. It combines over-the-counter options in the interest rate markets with US Treasury Inflation Protected Securities (TIPS) to hedge inflation and interest rate risk.
Highlights of the IRVH:
- Efficient hedging: By combining TIPS with over-the-counter (OTC) interest rate options, IRVH offers investors the opportunity to potentially hedge against inflation and benefit from falling interest rates short-term and/or rising long-term interest rates.
- Portfolio Diversifier: IRVH is expected to exhibit a low correlation to the 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.
For more news, insights and strategy visit the Thematic investment channel.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.