Fixed-income strategies have been bleeding assets as interest rates rise faster than expected. Meanwhile, AdvisorShares is working on an actively managed “rising rate” exchange traded fund to help investors manage risk.
According to a Securities and Exchange Commission filing, the AdvisorShares Treesdale Rising Rate ETF (NYSEArca:HDGB) will try to generate current income while providing protection in a rising rate environment by holding positions in mortgage-related products with interest-only cash flows and manage duration risk with liquid interest rate products.
Treesdale Partners LLC is the sub-advisor to the actively managed ETF.
Eric Dutram for Zacks notes that this type of fund strategy could provide a fresh option if rates continue to increase.
The fund will be “investing principally in agency interest-only mortgage-backed securities, interest-only swaps and certain other mortgage-related derivative instruments, while maintaining a negative portfolio duration with a generally positive current yield by investing in U.S. Treasury obligations and other liquid rate instruments,” according to the filing.
The mortgage-backed securities are intended to provide negative duration exposure and benefit from rising rates. The fund managers hope to create an overall portfolio duration of within -5 to -15 years, which will offset long positions in U.S. Treasuries, interest rate swaps and other duration products.
Duration is a measure of a fixed-income asset’s price sensitivity to changes in interest rates. A longer duration typically translates to a greater negative impact in a rising rate environment. A negative duration occurs when a debt security’s price moves in the direction as interest rates – interest rates and bond prices typically have an inverse relationship.
For more information on new product launches, visit our new ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.