New ETFs Combat Rising Rates, Inflation & QE

February 22, 2013


Devaluing Currencies

Pimco also has three funds near launch that are particularly interesting in today’s investment environment.

The first, the Pimco Foreign Currency Strategy ETF (NYSEArca: FORX), which launched last week, is an actively managed fund that targets currencies expected to outperform the USD over the long run. To accomplish its goals, the fund can buy foreign currency and foreign debt, including short-term fixed-income instruments, money market securities and currency forwards.

FORX is particularly relevant in today’s economic environment because swaths of investors, especially savers and retirees, are concerned that central-bank money-printing tactics will lead to massive currency devaluation that will essentially evaporate real wealth from savings accounts through inflation.

The caveat here is that, as an active fund, you’re dependent on the skill and opinion of the portfolio manager to pick those currencies that will outperform the USD over the long run. Furthermore, we don’t know for certain what the criteria for evaluation are.

Short-Duration Fixed Income

Pimco has two other funds that are likely to launch soon and reduce interest rate risk by targeting the short end of the yield curve.

The first, the Pimco Government Limited Maturity ETF, is another actively managed fund that buys a range of government-issued or government-guaranteed debt and targets a duration of less than one year.

The other, the Pimco Prime Limited Maturity ETF, is also an actively managed ETF. It invests in investment-grade securities and seeks an ultra-short average portfolio duration less than 90 days.

Both of these funds reduce interest rate risk by targeting the short end of the yield curve. In a rising rate environment, this allows investors to maintain fixed-income exposure with less interest rate risk and, consequently, less pain.

ETFs And The Retail Investor

Ultimately, in what’s become an increasingly competitive industry, issuers are more responsive than ever to investor concerns.

All four of the products outlined here should be new to the market this month, and all four provide investors with viable solutions to help them navigate the myriad risks and concerns associated with suppressed interest rates, quantitative easing and inflation.

This is not a comprehensive review of all products that can help. For that, I recommend our ETF Analytics product. For a review of ETFs that attempt to combat inflation and deliver real return, see my colleague Paul Britt’s blog on inflation-fighter ETFs.

At the time this article was written, the author held no positions in the securities mentioned. Contact Spencer Bogart at [email protected].



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