My preferred method of facing interest rates right now is to shift core bond holdings toshorter duration securities. This still allows you to take advantage of the income producing characteristics and capital appreciation potential of bonds without the same amount of interest rate risk as long or intermediate-duration securities. Investors that are looking to take advantage of short-duration funds may want to consider the PIMCO 0-5 Year Corporate Bond ETF (NYSEARCA:HYS) or the Vanguard Short-Term Corporate Bond ETF (NASDAQ:VCSH). Both of these funds pay monthly income, are low in volatility, and have been in solid uptrends this year.
Investors have numerous tools at their disposal to play the bond market over the next several months, whether it’s hedging your portfolio with a rising rate fund or switching to a shorter duration alternative. The option that you choose will likely be based on your risk tolerance, trading discipline, time horizon, and investment objectives.
Remember that even in the face of rising interest rates there will be sectors of the bond market that continue to outperform and having the right income seeking strategy in place will be key to navigating these choppy waters.
This article is brought to you courtesy of David Fabian from FMD Capital Management.