Global X Interest Rate Hedge ETF Returns and Market Outlook

The Global X Interest Rate Hedge ETF is designed to provide a hedge against rising interest rates by investing in a diversified portfolio of interest rate-sensitive securities.

Its investment objective is to track the performance of the Solactive Interest Rate Hedge Index, which is designed to provide a hedge against rising interest rates in the US and Europe.

The ETF holds a mix of bonds and other interest rate-sensitive securities, with a focus on shorter-term investments to minimize interest rate risk.

By investing in the Global X Interest Rate Hedge ETF, investors can potentially reduce their exposure to rising interest rates and generate returns that are less correlated with traditional bond and stock market performance.

On a similar theme: Global Macro Hedge Funds List

The Global X Interest Rate Hedge ETF, also known as RATE, is a potential solution for investors to consider in a rising rate environment. It specifically targets interest rate risk and can help mitigate both duration risk inherent in most fixed income instruments, and equity market multiple contraction in response to rising rates.

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This ETF uses interest rate swaptions and may give investors the ability to hedge interest rate risk either in their fixed income portfolio or more broadly across their entire portfolio. The strategy aims to produce a short-term inverse correlation to long-term treasury bonds and a high correlation to longer-dated interest rate movements.

The fund primarily invests in payer swaptions, as well as the cash collateral associated with maintaining the positions. This means the fund has the right (but not the obligation) to enter into a new swap agreement where the fund pays a fixed interest rate and receives a floating interest rate.

The fund must periodically migrate out of options nearing expiration and into options with later expiration dates, a process referred to as “rolling.” Global X actively manages this roll process, which is essential for the fund's success.

The Global X Interest Rate Hedge ETF is designed to provide a hedge for investors in a volatile interest rate environment, and it may be a substitute for traditional fixed income allocations like treasuries.

For another approach, see: Long Term Bonds vs Short Term

The Global X Interest Rate Hedge ETF has an average historical performance of falling by 7.6% over the next 52 weeks based on the past 2 years of stock performance.

The current risk-adjusted performance rank of the ETF is 42, indicating average performance compared to other ETFs. This rank is based on common performance measures.

The Sharpe ratio, a key indicator of risk-adjusted returns, is 0.87 for the ETF, calculated based on the past 1 year of trading data.

Here's a summary of the ETF's historical performance metrics:

The current share price of the ETF is $19.84, and its Stock Score is 80, which is 60% above its historic median score of 50, indicating lower risk than normal.

Let's take a closer look at the returns of Global X Interest Rate Hedge ETF. This ETF has had a return of 7.95% year-to-date (YTD) and 21.95% in the last 12 months.

It's worth noting that the ETF has also had a slight dip of -0.66% in the last period, which is a relatively small decline.

If we compare the ETF's performance to its benchmark, the S&P 500 index, we can see that it has outperformed it in the last 12 months.

Here's a summary of the ETF's returns by period:

Over the past 2 years, the ETF has historically fallen by 7.6% on average over the next 52 weeks, so it's worth keeping an eye on its performance in the coming months.

The current rank of Global X Interest Rate Hedge ETF (RATE) is 42, indicating average performance compared to other ETFs. This means it's not leading the pack, but it's also not trailing behind.

The Sharpe ratio, a key risk-adjusted performance indicator, is 0.87 for RATE. This value takes into account price changes and dividends over the past year.

Here are some key statistics on RATE's risk-adjusted performance:

Over the next 52 weeks, RATE has historically fallen by 7.6% on average, based on the past 2 years of stock performance. This means investors should be prepared for potential declines in the short term.

The worst drawdowns for the Global X Interest Rate Hedge ETF are a major concern for investors. The largest reduction in portfolio value due to a series of losing trades was 28.48%.

This maximum drawdown occurred on September 10, 2024, and the portfolio has not yet recovered. The current drawdown is 7.17%, indicating that the portfolio is still under pressure.

To put this in perspective, a drawdown of 28.48% is a significant decline in value. It's essential for investors to understand that drawdowns are a normal part of investing, but they can be unsettling.

Here are the details of the worst drawdowns for the Global X Interest Rate Hedge ETF:

Concentration Analysis is a crucial aspect of evaluating a fund's performance and risk. It helps us understand how concentrated a fund's portfolio is in terms of its holdings.

The fund we're looking at has a relatively small number of holdings, with only 5 positions in its portfolio. This level of concentration can be both a blessing and a curse.

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One of the key metrics we can use to assess concentration is the weighting of top holdings. In this case, the top 10 holdings account for an astonishing 99.80% of the fund's net assets. This suggests that the fund is heavily concentrated in a small number of positions.

Here's a breakdown of the fund's top holdings:

These holdings are quite diverse, with a range of bond instruments and swap positions. However, the sheer size of the top holdings suggests that the fund is taking on significant risk by concentrating its assets in a small number of positions.

Ultra-low interest rates have been a double-edged sword for investors, contributing to strong fixed income performance, but also creating a ticking time bomb of duration risk.

The bond market has taken a staggering hit this year, with a -9.3% drawdown through May 31, making it a year to remember for income investors.

Intriguing read: Pimco Strategic Income Fund

Investors need to be aware of the interest rate risk present in their portfolios, as the rise in rates this year has made duration risk a major concern.

The lack of real yield and inflationary environment has compounded the problem, making it essential for investors to reassess their fixed income strategies.

The Global Stock Rating is a crucial aspect of evaluating a stock's performance and risk. The current trend in the Global X Interest Rate Hedge ETF is relatively stagnant, indicating a lack of momentum.

Selling pressure is building, with RATE experiencing increased selling activity. This suggests a potential bearish movement in the future.

It's essential to keep an eye on these trends to make informed investment decisions.

The Global X Interest Rate Hedge ETF offers a unique way to diversify your portfolio by hedging against interest rate changes. The ETF's management fee is 0.50% per annum.

To give you a better idea of the costs involved, let's break down the expense ratio. This includes the management fee, as well as other operating expenses, which total 0.60% per annum.

You can expect to pay $60 per year for every $10,000 invested in the ETF.

The expense ratio is an important factor to consider when evaluating a financial product. The RATE expense ratio is 0.50%.

This falls within the medium range, which is a good starting point for investors. The exact definition of "medium" is not provided, but it's a useful benchmark for comparison.

Related reading: Conversion Ratio for Convertible Bonds

The fund details are worth a closer look. The legal name of the fund is Global X Interest Rate Hedge ETF.

This fund is part of the Global X Funds family, which has a reputation for innovative investment solutions. The fund's inception date was July 5, 2022.

If you're interested in investing, it's essential to know the currency in which the fund's shares are denominated. For this fund, that currency is USD.

Here are the fund's key details:

The Global X Interest Rate Hedge ETF is designed to benefit from a rising rate environment. It invests in long interest rate swap options, which are contracts that allow the fund to buy or sell interest rates in the future.

The fund's strategy is to purchase payer swaptions that will generally fall in the range of 7.5-15% of the fund's assets. This allocation can increase to 25% under normal circumstances.

The fund aims to have its swaptions purchased at slightly out of the money to have exposure to interest rates. This means that the fund will buy options that are not currently in the money, but are expected to become in the money in the future.

The strategy utilizes swaption contracts less than 1-year to expiration on the 10-year rate swap. The swap rate is benchmarked to the 10-Year Secured Overnight Financing Rate (SOFR).

IRVH, another fund offered by Global X, is designed to offer investors inflation-protected income potential while also potentially benefiting from a steepening of the yield curve and an increase in interest rate volatility. It invests in a mix of TIPS and interest rate options on the shape of the yield curve.

IRVH's TIPS allocation generally falls between 85-92.5% in Treasury Inflation-Protected Securities. The remaining 7.5-15% is allocated to interest rate curve spread options.

The interest rate curve spread options are used to take a view on future relative changes in different parts of the yield curve. They benefit from a widening of the 2s10s interest rate swap curve, which can occur when short-term rates lower or long-term rates rise.

For another approach, see: Money Factor to Interest Rate

The underlying swap rate for the contracts is the spread between the 10-Year Treasury yield and 2-Year Treasury yield. This gives investors exposure to the shape of the yield curve.

By pairing a TIPS portfolio with Over-the-Counter (OTC) interest rate curve spread options, IRVH can potentially benefit from both inflation and a steepening yield curve. This can be beneficial during periods of uncertainty when investors expect fewer rate hike expectations and increasing inflationary pressures.

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IRVH and RATE are two funds designed to benefit from changing interest rate landscapes. They use exotic option strategies to achieve this goal.

A steepening yield curve is ideal for IRVH's performance, which can occur through a bear steepener or a bull steepener. This can lead to a widening difference between short- and long-term yields.

IRVH uses a single look yield curve spread option, similar to European style options, which can only be exercised at expiration. This is in contrast to American style options, which can be exercised at any time prior to expiration.

A rising rate environment is optimal for RATE's performance, which is different from IRVH's requirements. This fund uses a payer swaption with a European exercise style.

The performance of these funds is not only dependent on interest rates but also on inflation levels. A higher inflation environment is beneficial for IRVH, while a rising rate environment is ideal for RATE.

If you're considering investing in a Global X Interest Rate Hedge ETF, it's essential to understand the potential benefits and risks.

The Global X Interest Rate Volatility and Inflation Hedge ETF (IRVH) targets both inflation and interest rate volatility, providing exposure to numerous factors that affect investors, such as inflation, rates, curve steepness, and interest rate volatility.

IRVH is actively managed, allowing it to seek opportunities in changing market trends and efficient options execution. This structure also provides greater liquidity, making it a tactical or long-term vehicle for investors.

The fund's primary objective is to hedge relative interest rate movements arising from a steepening of the US interest rate curve and to benefit from periods of market stress when interest rate volatility increases. This combination offers the potential to provide low correlation to bonds and equities, common allocations in a 60/40 portfolio.

The 2s10s Treasury yield spread is a key indicator of the yield curve's steepness, and a negative spread has historically been viewed as a recessionary indicator or precursor to market weakness.

The average 2s10s spread going back 30 years is 114.9bps, and currently, the spread sits at 19bps, leaving ample room for widening spreads.

IRVH uses TIPS to protect investors against inflation and options to benefit from periods of market stress, making it a potential substitute for traditional fixed income allocations like treasuries in a volatile interest rate environment.

The fund's active management and ETF structure make it a tactical tool for investors, allowing them to benefit from periods of market stress and interest rate volatility.

Broaden your view: Interest Rate Impact on Equity Market

Global X Interest Rate Hedge ETF investors should be aware of the potential market volatility ahead. Over the next 52 weeks, Global X Interest Rate Hedge ETF has historically fallen by 7.6% on average based on the past 2 years of stock performance.

The likelihood of this ETF falling lower in the subsequent 52-week period is 50%, as it has happened in 1 out of the 2 years. This suggests that investors should be prepared for a possible decline in the stock's value.

In the current market landscape, rising interest rates are a key concern due to persistently high inflation. The Federal Reserve intends to raise rates through 2022 and 2023, which could put the implied Fed Funds policy rate at approximately 3.54% at the end of the year.

Here's a summary of the potential market outlook for Global X Interest Rate Hedge ETF:

Rising interest rates are a key concern for many investors today, as central banks are reacting to persistently high inflation. The Federal Reserve intends to raise rates through 2022 and 2023, with over 8 hikes of 25 bps priced in by year end.

The Fed's aggressive policy response is due to inflationary pressures spreading across the entire economy. The latest inflation print in May came in at 8.6% year-over-year, significantly higher than levels even just 12-18 months ago.

A tight labor market, high energy prices, supply chain issues, and consumer strength are all contributing to these elevated inflation levels. These factors indicate late cycle activity, making it unlikely for inflation to dissipate anytime soon.

The Fed's hawkish policy stance and sticky inflation are causing the bond market to react. Yields have been spiking up, with the 10-year treasury rate hovering around 3% recently, a level not seen since 2018.

Investors should consider interest rate curve swap option strategies as a way to protect their portfolios from rising interest rates. This can be done through options-based ETFs that target interest rate moves and volatility.

For another approach, see: Fed Raise

Looking at historical data, we can see that some stocks have a tendency to trend downwards. For example, Global X Interest Rate Hedge ETF has historically fallen by 7.6% over the next 52 weeks based on the past 2 years of stock performance.

It's essential to keep in mind that past performance is not a guarantee of future results, but it can give us a general idea of what to expect. Historically, this ETF has consistently shown a decline in value over the short term.

If we're looking at the bigger picture, it's worth noting that some stocks have shown a more stable trend. However, it's crucial to remember that every stock is different and has its own unique characteristics.

Here are some key statistics to keep in mind:

It's always a good idea to do your own research and consult with a financial advisor before making any investment decisions.

The Global X Interest Rate Hedge ETF offers two distinct investment options: RATE and IRVH. Both funds are designed to provide investors with a hedge against interest rate fluctuations and inflation.

RATE seeks to benefit from an increase in long-term interest rates by investing in long interest rate swap options and short-term U.S. Treasury securities. The fund's strategy involves buying payer swaptions that fall within a specific range of the fund's assets.

Curious to learn more? Check out: Bank Interest Rates for Term Deposits Nz

IRVH, on the other hand, aims to offer inflation-protected income potential while also benefiting from a steepening of the yield curve and an increase in interest rate volatility. The fund primarily invests in a mix of TIPS and interest rate options on the shape of the yield curve.

The TIPS allocation in IRVH loosely follows the Solactive TIPS Index, investing in Treasury Inflation-Protected Securities with maturities ranging from 1 to 30 years. The fund's options portfolio is designed to balance real rates and yield curve components.

IRVH's options portfolio is expected to benefit from a steepening of the yield curve, which occurs when the yield curve steepens due to a sharper drop in short-term rates relative to long-term rates. The fund's strategy can navigate complex market environments by holding uniquely positioned over-the-counter curve options and TIPS.

The Global X Interest Rate Hedge ETF offers investors a range of investment options to suit their needs, whether they're seeking to hedge against interest rate fluctuations or protect against inflation.