NEW YORK (TheStreet) -- WisdomTree Investments has had much success -- not only by issuing funds to attract funds investors, but also moving into new niches within the ETF industry. The company, of course, started out with dividend-focused funds then went on to take a dominant position in currency-hedged foreign ETFs. Its newest foray is four fixed-income funds, structured to offer protection when interest rates finally start to go higher.
The new funds include:
WisdomTree BofA Merrill Lynch High Yield Bond Negative Duration Fund (HYND)
WisdomTree BofA Merrill Lynch High Yield Bond Zero Duration Fund (HYZD)
WisdomTree Barclays US Aggregate Bond Negative Duration Fund (AGND)
WisdomTree Barclays US Aggregate Bond Zero Duration Fund (AGZD)
The word duration in the name of these four funds refers to how sensitive the portfolio is to rising rates. The longer the duration the more sensitive the portfolio is. Zero duration targets no sensitivity to rising rates, hence neutralizing threats of rising rates by shorting treasury futures. Negative duration goes a step further by shorting treasury futures so that the fund would ideally go up when rates rise.
Interest rates have been low for many years, and logically after being low, rates will rise. That ultimate outcome was behind the launch of the ProShares Ultra Short 20+ Year Treasury ETF (TBT)
The ProShares funds simply sell short-treasury futures and will benefit when rates go up. However, they are not designed to pay income in the meantime. TBT can pay a dividend if the interest earned on cash in the fund exceeds the expense ratio, but TBT has not paid a dividend since 2008. TBT and similar funds hold onto cash to collateralize the short positions in treasury futures.