In light of the growing risk of a rising rates environment, Northern Trust , the money manager behind the FlexShares line of exchange traded funds, plans to launch an international “variable-income” bond ETF on Thursday to help investors hedge against changes in interest rates.
According to the ETF’s prospectus, the ETF’s average portfolio duration will vary based on the company’s forecast for interest rates, but the duration will not exceed one year.
A bond’s duration is the price sensitivity of the security to changes in interest rates – bonds that have longer durations will experiences steeper price drops if interest rates rise. Under a variable income, payments may be changed based on some underlying measure, which in this case is short-term interest rates.
RAVI will hold about 65% of its assets in non-diversified portfolio of fixed-income instruments, such as bonds, debt securities and other instruments issued by the U.S. and non-U.S. public and private sectors, like corporations and banks.
Additionally, the fund may hold over 25% of its assets in total assets in securities and instruments of issuers in a single developed market country and up to 20% of its total assets in emerging market debt.
Moreover, the fund will not hold more than 10% in non-agency mortgage or asset-backed securities.
RAVI has a 0.25% expense ratio.
For more information on new fund products, 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.