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Rising Interest Rates Are Great News For These Bond ETFs

With an improved economy and better employment prospects, a rate hike by the Fed is back on the table for 2015. We have already started to see rates move higher in recent weeks in anticipation of this, as benchmark 10-year debt is now around 2%, a sharp and sudden increase from levels, which were in the 1.65% range earlier in the month. If rates continue in this direction, bond investors will likely see something that they haven’t experienced in a while, losses. With rising rates bond prices will fall, hitting the returns for investors who have big holdings in the fixed income world (see Play Rising Rates with These ETFs ). What’s a Fixed Income Investor to Do? This puts fixed income investors in quite the quandary, as many still desire the stability that comes with bonds, but with the writing on the wall for rates, it is hard to be too optimistic about the space in the near term. However, should we see a burst in market volatility, investors will likely clamor for more bond holdings, putting many investors in a difficult spot. Fortunately, thanks to some relatively new bond ETFs, fixed income investors might have a solution on their hands. These new products are ‘negative duration’ bonds and they actually look to rise in price when rates rise and thus are basically built for a rising rate environment (see 3 Sector ETFs to Profit from Rising Rates ). Currently, there are two such funds both coming to us from WisdomTree. First up, we have the WisdomTree Barclays Aggregate Bond Negative Duration ETF (NASDAQ: AGND ), which has a -5 year duration, and then the WisdomTree BofA Merrill Lynch High Yield Bond Negative Duration ETF (NASDAQ: HYND ) , which has a -7 year duration for those who focus on the junk bond market. More Information These types of funds could be interesting stand alone picks, or ones to pair with other bond holdings as well. For example, an (iShares Core Total U.S. Bond Market ETF (NYSEARCA: AGG )) investor could use AGND in order to bring down their overall duration, while a similar strategy can be used by (iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG )) or (SPDR Barclays Capital High Yield Bond ETF (NYSEARCA: JNK )) investors who are looking to ratchet down their interest rate risk levels with HYND. For more on these funds and how they can be used in a portfolio, watch our short video on the topic below!

QuantShares Launches Long/Short Dividend Income ETF

By DailyAlts Staff Investors looking for high current yield and potential capital appreciation have somewhat limited pickings these days. With the launch of its QuantShares Hedged Dividend Income ETF (NYSEARCA: DIVA ) on January 20, FFCM LLC has made the pickings a little less slim. The QuantShares Hedged Dividend Income ETF is designed to follow the Indxx Hedged Income Index, which has been live since February 2013. In pursuit of its high dividend income objective, the fund invests in 100 stocks with attractive dividend characteristics: high dividend yield, consistent dividend payment, and/or dividend growth. The investments are selected from the 1,000 largest stocks in the Indxx Hedged Income Index and weighted equally. Not Just Another Long-Only Fund But the QuantShares Hedged Dividend Income ETF isn’t a long-only dividend fund. The fund will also short around 200 stocks from the same universe of 1,000 stocks. The stocks selected as short sales have little to no dividend history and low dividend yields. But despite the number of short positions doubling the number of longs, the fund is designed so that the value of the short positions is roughly half that of the longs. “Our exemptive relief with the SEC allows us to hedge and de-risk via an index-based, long-short strategy,” said Bill DeRoche, the fund’s portfolio manager, in a press release announcing the fund’s launch. The QuantShares Hedged Dividend Income ETF rebalances its holdings every month and reconstitutes every quarter. Its investment approach caps net exposure to no more than 12.5% per sector. The fund also pays dividends on a monthly basis, which is an attractive feature for income-oriented investors. The fund’s “monthly dividend payments, hedged portfolio, and ETF structure” offer investors a “transparent, tax efficient, and diversifying alternative” to both low-yield fixed income and higher-risk equity-dividend products, according to Mr. DeRoche. Alternative to Fixed Income Bill Carey, CEO of QuantShares investment advisor FFCM LLC, also says the fund makes a good alternative to fixed income and other equity-dividend products. For investors in corporate bonds, Mr. Carey says the QuantShares Hedged Dividend Income ETF “may offer a higher after-tax yield with similar return and risk characteristics.” The fund also offers “a number of potential advantages over widely used equity-based income-producing products,” due to its “lower risk and volatility relative to that of long-only equity strategies,” in Mr. Carey’s words. The new fund launch is QuantShares’ first since being acquired by Mosaic Investment Partners in May 2013. The firm reportedly required alternative financing at the time. For more information, visit the fund’s page .