Investing For Beginners

Investing For Beginners is a series of articles, resources, and other information about basic investments, value investing, quantitative research and other ideas.

ETFs For a Rising Interest Rate Environment

Are interest rates going to rise soon? The Federal Reserve seems to think so. Here are four Exchange Traded Funds that will help protect your capital if rates do rise.


iShares US Treasury Inflation Protected Securities ETF (TIP)

This ETF invests in US government bonds whose value adjusts with inflation. Should inflationary expectations rise, the TIP ETF will gain in value; there is also downside protection risk as U.S. TIPS only adjust with positive inflation, i.e. if inflation is negative, the value of TIPS stays the same.  NOTE: If interest rates rise faster than inflation, then the ETF will lose value.

ProShares Investment Grade—Interest Rate Hedged ETF (IGHG)

This ETF invests in USD-denominated investment-grade corporate bonds from both US and foreign companies while holding short positions in US Treasury notes/bonds of similar duration. This ETF seeks to achieve an overall duration of zero. The current yield for this ETF is 3.83%

SPDR Citi International Government Inflation-Protected Bond ETF (WIP)

 This ETF buys international inflation-linked bonds issued by 15 foreign governments, mainly focused on Europe. The foreign bonds have fixed-rate coupon payments that are linked to an inflation index. The individual government inflation-protected bonds move inversely to the interest rates of each respective issuing country,

Sit Rising Rate ETF (RISE)

RISE is an ETF designed to benefit when the Federal Reserve increases in short-term interest rates. This ETF shorts the shorter end of the yield curve, which are the bonds most affected by Federal Reserve rate hikes.The ETF hopes to achieve a targeted negative 10 year average duration U.S. Treasuries using futures and options on 2, 5, and 10 year securities. NOTE:  the RISE website provides a calculator to figure how much you need to invest to get a meaningful hedge.

by Steve Auger