Fight the Fed’s Rising Rates with Floating Rates
This article was originally published on ETFTrends.com.
With the Fed upgrading the U.S. economy's performance from "solid" to "strong," what does this mean for more rate hikes this year?
On the upcoming webcast Thursday, Sept. 20, Fight the Fed's Rising Rates with Floating Rates, Kevin Flanagan, Senior Fixed Income Strategist at WisdomTree, and Joseph Tenaglia, Asset Allocation Strategist at WisdomTree, will discuss how to navigate the current environment and what investment vehicles are designed to outperform when interest rates rise.
For example, the WisdomTree Barclays Yield Enhanced U.S. Short-Term Aggregate Bond Fund (SHAG) may be one way for investors to potentially enhance yield generation and diminish interest rate risk by targeting the shorter end of the U.S. Aggregate Bond universe.
SHAG tries to reflect the performance of the Bloomberg Barclays U.S. Short Aggregate Enhanced Yield Index, which captures the short-term U.S. investment-grade, fixed income securities market while seeking to enhance yield within desired risk parameters and constraints. The benchmark also uses a rules-based approach to re-weight subgroups to achieve higher yields and underweights low-yielding securities Treasuries, while managing risk through constraints on expected tracking error and turnover, as well as sector, duration, and credit exposure relative to the ST Agg Universe.
Additionally, the WisdomTree Bloomberg Floating Rate Treasury Fund (USFR) , which follows the Bloomberg U.S. Treasury Floating Rate Bond Index, focuses on floating rate notes. Instead of paying a fixed rate of interest like other Treasuries, floating rate note coupon payments are based on a reference rate (90-day t-bills) plus a spread. Since 90-day bills are auctioned every week, the effective duration of floating rate notes is one week, which allows investors to capture higher rates of income as short-term rates rise. This also provides an opportunity for investors to boost income as the Federal Reserve hikes interest rates.
Financial advisors who are interested in learning more about strategies for a rising rate environment can register for the Thursday, September 19 webcast here.
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