With Fed chairwoman Janet Yellen slated to speak tomorrow in a highly anticipated appearance, investors are of course questioning “Will they or won’t they?” in terms of the Fed raising rates either at their September meeting, or later this year in December, or at all.
When it comes to rising rates, there is actually a fund aptly named “RISE”: Sit Rising Rate ETF (NYSE:RISE) (Expense Ratio 1.64%).
This fund launched back in February of 2015 and has raised about $10.2 million since inception. The fund is likely not well known to most, but given the atmosphere we are in regarding the prospects of rising rates, the ETF deserves a closer look at this juncture.
Classified in the greater category of “Inverse Bond” ETFs, RISE is, according to fund literature:
“a strategic interest rate-hedging tool that gives investors the opportunity to benefit from the rise in the interest rates of U.S. Treasury notes. The portfolio targets a negative 10-year duration using futures and options on 2, 5, and 10-year maturity Treasury futures contracts.”
The ETF typically averages about 10,800 shares traded daily on a rolling three month average, but recently volume has basically doubled in the trailing one month to an ADV of about 21,900 shares. This spike is likely tied to the interest rate environment we are currently in. When delving through fund literature further, we see additional detail on the portfolio methodology which states:
“The weighting of the Treasury Instruments constituting the Benchmark Portfolio Index will be based on each maturity’s duration contribution. The expected range for the duration weighted percentage of the 2 year and 5 year maturity Treasury Instruments will be from 30% to 70%. The expected range for the duration weighted percentage of the 10 year maturity Treasury Instruments will be from 5% to 25%. The relative weightings of the Benchmark Component Instruments will be shifted between maturities when there are material changes in the shape of the yield curve.”
RISE shares were unchanged in Thursday morning trading at $22.54. The only ETF tied directly to rising interest rates has fallen 5% year-to-date.
Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.
Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.
He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.