Portfolio developer FolioBeyond is launching the second ETF tied to its firm in anticipation of rising interest rates in the coming years.
The FolioBeyond Rising Rates ETF (RISR) debuted on the NYSE Arca on Friday, sporting a rather large expense ratio of 1.01%.
The primary holdings in this fund are mortgage-backed securities, as they are thought to benefit during an interest rate hike, as fewer homeowners make prepayments and pay more in aggregate interest.
Generally, the price of a bond will move opposite to the direction of interest rates. However, RISR aims to maintain a portfolio with a duration of -10 years, meaning the fund’s value would rise alongside interest rates.
RISR will also buy Treasury bonds and ETFs to keep the target duration in check, and to provide some current income and hedging in the case of a rate drop.
The fund and its strategy come as Federal Reserve officials continue to signal an interest rate liftoff after pushing rates to nearly zero during the COVID-19 pandemic. The Fed Open Market Committee is split on whether it would be appropriate to raise interest rates next year, but the majority believe interest rates could be north of 0.5% by the end of 2023.
Courtesy Federal Reserve
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The first ETF associated with FolioBeyond, now known as the AdvisorShares FolioBeyond Smart Core Bond ETF (FWDB), launched in 2011, though the FolioBeyond name was only added in the past few years. That fund is a fund-of-funds aiming to outperform the Barclays U.S. Aggregate Bond Index, and charges 1.27% in expenses. FWDB currently has $5.3 million in assets under management.