WisdomTree Plans 8 Hedged Bond ETFs

October 03, 2013

An eight-fund toolbox for investors to negotiate rising interest rates enters the pipeline.

WisdomTree filed to offer eight fixed-income ETFs in different pockets of the bond world, each of which will have a short-selling Treasury overlay to mitigate interest-rate risks. The multiple filings come at a time when rates seem to be heading higher as the Federal Reserve looks to begin “tapering” its quantitative-easing (QE) policies in place since the financial crisis of 2008.

The Fed on Sept. 18 said it will continue its QE bond-buying program and “await more evidence that progress will be sustained before adjusting the pace of its purchases.” The announcement, which surprised investors, has led to a renewal of risk-on sentiment, pushing asset prices higher.

WisdomTree’s filing suggests that the fund sponsor, like a few other ETF firms, is preparing for the day that the Fed’s easy-money policies start winding down, and its push into the broad slate of fixed-income ETFs is the most ambitious move to date by any ETF company. The risk bond that investors face as interest rates and yields head higher is capital losses, and the funds are designed to limit those losses.

A number of other funds with similar aims are already on the market, including the ProShares High Yield−Interest Rate Hedged ETF (HYHG) and the Market Vectors Treasury-Hedged High Yield Bond ETF (THHY). HYHG has $27 million in assets, while THHY has just under $10 million, according to data compiled by IndexUniverse.

The eight proposed WisdomTree funds, canvassing a variety of pockets in the U.S. fixed-income markets including U.S.-dollar-denominated investment-grade corporate debt, junk bonds, agency bonds with maturities between one year and 10 years, are organized in pairs, with a different type of short-selling overlay—“negative duration” and “zero duration”—assigned to each of the pairs of identical credits.

The “negative duration” option is designed to cater to investors with a particularly bearish outlook on bonds, meaning the short-selling overlay would offset more of the potential capital losses associated with a bond-market sell-off than would the “zero duration” short-selling overlay.

The proposed funds, and links to each prospectus are as follows:





Each of the funds is based on an in-house index—something that WisdomTree is known for, and in fact pioneered. Indeed, the New York-based ETF sponsor was an index company before it was an ETF company, and was one of the first firms to receive permission from the Securities and Exchange Commission to market funds with “affiliated”—or in-house—indexes.

The eight registration statements didn’t include possible ticker symbols or proposed annual expense ratios or mention where the securities might have their primary listings.


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