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Fixed Income Opportunities As Rates Rise

This article was originally published on ETFTrends.com.

As the Federal Reserve continues to tighten its monetary policy, fixed-income investors will have to adapt their portfolios to the changing interest rate environment.

On the upcoming webcast Wednesday, July 25, Fixed Income As Rates Rise, Matthew Bartolini, Head of SPDR Americas Research for State Street Global Advisors, Rob Glownia, Fixed Income Portfolio Manager at Riverfront Investment Group, and Robert D. Williams, Principal and Managing Director at Sage Advisory Services, will look to opportunities in the short-end of the yield curve to generate income while mitigating duration risk and consider ways to blend active and passive exposures to help financial advisors position portfolios in today’s bond market.

Fixed-income investors can look to something like the like the SPDR Barclays Investment Grade Floating Rate (FLRN) to hedge interest rate risks. The ETF follows the Bloomberg Barclays U.S. Dollar Floating Rate Note < 5 Years Index, which seeks to provide exposure to debt instruments that pay a variable coupon rate, a majority of which are based on the 3-month LIBOR, with a fixed spread.

Floating rate notes, like the name suggests, have a floating interest rate. Specifically, the notes’ have a so-called reset period with interest rates tied to a benchmark, such as the Fed funds, LIBOR, prime rate or U.S. Treasury bill rate. Due to their short reset periods, these floating rate funds have relatively low rate risk.

Investors could also complement existing credit positions in high-yield and investment-grade credit with alternatives like bank loans that access floating rate, move up the capital structure and shortens duration exposure. For example, the actively managed SPDR Blackstone/GSO Senior Loan ETF (SRLN) could help investors with better exposure as a manager is more freely able to weave in and out of the fixed-income market. Blackstone/GSO, which subadvises SRLN, is backed by one of the largest senior loan asset managers in the world.

Due to their floating rate component, bank loans are seen as an attractive alternative to traditional high-yield corporate bonds in a rising rate environment. Bank loan securities allow their interest rate to shift, or float, along with the rest of the market, whereas a fixed interest rate stays constant until maturity.

Senior loans, bank loans or leveraged loans may act as an attractive alternative. A Senior loan is a private loan a firm takes from a bank or a syndicate of lenders. The loans are backed by the borrowers’ assets, which act as collateral. If the borrower defaults, lenders have a senior claim on the defaulters’ assets.

Financial advisors who are interested in learning more about fixed-income investment strategies can register for the Wednesday, July 25 webcast here.

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