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ETFs To Hedge Treasuries As Traders Go Short

Summary U.S. Treasuries had a great year. Bond traders are now growing wary, increasing shorts against Treasuries. Aggressive traders who have a bearish outlook on Treasuries can consider inverse leveraged ETF options. Bond investors are growing increasingly bearish on Treasuries futures. Exchange traded fund traders can also hedge against a fall in the Treasuries market through inverse products. For instance, the ProShares UltraShort 20+ Year Treasury (NYSEARCA: TBT ) seeks to deliver twice the daily inverse performance of the Barclays Capital US Treasury 20+ Year Treasury Bond Index. TBT has increased 3.4% over the past week but is still down 39.5 year-to-date. TBT’s triple- leveraged cousin, the Direxion Daily 20-Year Treasury Bear 3X ETF (NYSEARCA: TMV ) , has increased 4.7% over the past week but declined 54.3% year-to-date. Bond investors are building on what some are calling the largest short position ever in Treasury futures, reports Patti Domm for CNBC . Specifically, George Goncalves, head of rate strategy at Nomura, estimates that there are some $29 billion in shorts across the Treasury futures complex, the highest post-financial crisis level. Adrian Miller, director of fixed income strategy at GMP Securities, also pointed out that there were 258,000 net short positions for 10-year futures on December 16, the second largest ever behind May 2010. In comparison, there were only 75,000 net shorts as of November 25. “We started rolling into better data, and then we had the employment report. That probably quickened the trade,” Miller said in the article. “We can debate all day long how much rates are going to rise… At the end of the day, it’s still going to be a rising rate environment.” Along with higher rate expectations in anticipation of the Federal Reserve eventually hiking rates, the market is also positioning for other events, like the European Central Bank easing. “We’ve got the ECB meeting Jan. 22. The first week of January we get all of the European inflation data. That’s going to really set the tone,” Goncalves said in the article, arguing that the market sees a chance that the ECB could reveal a quantitative easing program. ProShares UltraShort 20+ Year Treasury (click to enlarge) Max Chen contributed to this article .

Floating Rate ETFs For Rising Rates Protection

Summary Interest rates have declined this year. Fixed-income investors who want to hedge against rising rates can take a look at floating-rate bond ETFs. Floating-rate bond ETF options and how they work. As was the case at this time a year ago, plenty of investors are banking on the new year bring an interest rate hike from the Federal Reserve. Should expectations of higher interest rates gain momentum, it would not be surprising to see investors embrace floating rate exchange traded funds as additions to fixed income portfolios. ETFs such as the iShares Floating Rate Bond ETF (NYSEArca: FLOT ) , SPDR Barclays Investment Grade Floating Rate (NYSEArca: FLRN ) and the Market Vectors Investment Grade Floating Rate (NYSEArca: FLTR ) have floating interest rates . Specifically, floating rate notes have a so-called reset period with interest rates tied to a benchmark, such as the Fed funds, LIBOR, prime rate or U.S. Treasury bill rate. Carolyn Bigda reports for Kiplinger , FLOT owns variable-rate, investment-grade bonds that banks issue to companies; the interest rates adjust every quarter. Unlike most “bank loan” funds, though, Floating Rate holds only bonds that have been extended to high-quality companies, so it has less credit risk than a typical bank-loan fund does. Floating Rate Bond yields just 0.4%. But if the Federal Reserve begins to raise short-term interest rates in 2015, as seems likely, you’ll get the full benefit of fatter yields with little risk to your principal. The fund, which launched in 2011, returned a minuscule 0.3% over the past year and 1.8% annualized over the past three. FLOT, the largest of the floating rate ETFs, has seen increased demand this year as investors have prepared for an interest rate increase that has yet to arrive. The ETF, which debuted in June 2011, has hauled in $355.6 million of its $3.9 billion in assets under management since the start of the year. Still, competition in the floating rate ETF space is intense. In November, Van Eck lowered the fees on FLTR to 0.14% per year from 0.19%. FLTR tracks the Market Vectors US Investment Grade Floating Rate Index (MVFLTR), which consists of U.S. dollar-denominated floating rate notes issued by corporate issuers and rated investment grade by at least one of the three rating services: Moody’s, S&P or Fitch, according to Market Vectors . FLOT charges 0.2% per year and has a 30-day SEC yield of 0.4%. FLTR’s 30-day SEC yield is 0.59%. Market Vectors Investment Grade Floating Rate (click to enlarge) ETF Trends editorial team contributed to this post.

ValueShares Launches Global Version Of Quantitative Value ETF

Not too long ago, ValueShares launched its active value ETF in the U.S. market, namely the U.S. Quantitative Value ETF (BATS: QVAL ) . The product has seen decent success so far having amassed about $21 million in assets within just 1.5 months. Probably encouraged by this strong response, the issuer has introduced another value based ETF targeting the international market on December 17, 2014. Below we have highlighted the fund in greater detail for investors seeking a new way to play value stocks in international markets: The ValueShares International Quantitative Value ETF (BATS: IVAL ) in Focus The newly launched ETF is actively managed in nature. The fund provides exposure to about 50 international stocks with strong value characteristics. As such, the fund provides an opportunity to invest in some of the cheapest and quality stocks of abroad on long-term valuation metrics. To do so, the issuer uses a systematic technique. The fund manager initially selects a group of mid-to-large cap international stocks, then analyses financial statements and finally identifies stocks which boast lower enterprise values with respect to operating earnings as well as dirt cheap valuations before considering those as investment targets. The fund charges 99 bps in fees for this exposure. How Could it Fit in a Portfolio? The fund could be a good choice for value investors targeting the international market. In fact, value investing has become extremely necessary for investors with a global market focus given deflationary concerns in the Euro zone, Japan and the world’s second largest economy China. A recent boost to Japan’s already accommodative policies, QE talks in the Euro zone and expectations for further easing in Chinese monetary policy in the wake a prolonged downbeat business environment triggered the need for value investing in the foreign markets. So, it is almost certain that volatility will remain high in the coming months. In such a scenario, value products like IVAL should protect investors from market volatility. Notably, a value investing strategy gives investors exposure to stocks that are trading below their intrinsic values and are considered cheaper than other stocks. Value stocks usually have low price-to-earnings ratios, low price-to-book ratios and high dividend yields, as compared to their growth counterparts. Can it Succeed? The road ahead should not be easy for the newly launched fund as there are quite a number of funds already prevalent in the global value equities space. Vanguard FTSE All-World ex US Index Fund (NYSEARCA: VEU ) dominates the global equities ETF space with assets worth $12.0 billion. The fund has a value focus too with a dividend yield of 3.57% (as of December 18, 2014). The fund gives investors exposure to a basket of 2,460 stocks of more than 45 countries, from both developed and emerging markets around the world. The fund charges 15 basis points as fees. There are several other quality and value ETFs in the global equities space namely the FlexShares International Quality Dividend Index Fund (NYSEARCA: IQDF ) , FlexShares International Quality Dividend Defensive Index Fund (NYSEARCA: IQDE ) , MSCI International Quality Dividend ETF (NYSEARCA: QDXU ) , Cambria Global Value ETF (NYSEARCA: GVAL ) and lots more. Investors should note that IVAL is costlier than most of the well-known funds in this space. The product’s actively managed nature might have led to such hefty fees. So, to amass investors’ money in the long run, we believe that IVAL needs to sell its actively managed nature and methodical stock-selection technique, and show some level of outperformance when compared to ETFs built on relatively on relatively similar themes in this space that do not cost as much.