ETF Managers Capital has launched the first exchange traded fund (ETF) designed to hedge rising interest rates by targeting a constant negative 10 year bond duration.
Sit Rising Rate ETF (RISE) seeks to profit from rising interest rates by tracking the performance of a portfolio consisting of exchange traded futures contracts and options on futures on 2, 5 and 10-year US Treasury securities weighted to achieve a targeted negative 10 year average effective portfolio duration.
With a negative 10-year duration, the idea is that a 1% rise in US Treasury yields results in about a 10% rise in price. So the price moves nearly 10 times the change in yield. RISE is focused on the 2 and 5-year US Treasury futures with a minor weighting in 10-year futures.
Sam Masucci, founder and CEO of ETF Managers Group, says: “With the Sit Rising Rate ETF, we bring Sit Investment Associates’ institutional portfolio management expertise to an expanded range of investors interested in hedging interest rate volatility. A small allocation of 10 to 20 percent in RISE can significantly reduce the interest rate risk within a bond portfolio.”
Bryce Doty, CFA, Senior Fixed Income Portfolio Manager at Sit Investment Associates, says: “Not only can RISE be used to hedge against rising interest rates, investors can actually benefit from an increase in short-term rates. We have used this strategy successfully for our institutional clients since we developed it almost four years ago. RISE is a great complement to most bond portfolios.”