Using RISR – FolioBeyond’s Rising Rates ETF – to Help Navigate Ongoing Market Volatility
The volatility seen in financial markets over the last several months has been remarkable, and even a little bit scary.
The stock market has swung from an all-time high of about 4800 on the S&P 5001, to a gut-wrenching low of 3667, a drop of 23.5% in less than 6 months. It has since recovered a bit, but the ride has been extremely volatile with three significant dead-cat bounces of 13%, 7% and 5.5%, respectively.
Make it stand out
Whatever it is, the way you tell your story online can make all the difference.
Meanwhile in bonds, the supposedly quiet part of the market, volatility has risen to levels not seen since the 2007-08 financial crisis.
Year-to-date, RISR is up just under 25% with a comparatively modest drawdown of 14.5%. Our realized volatility of around half that of the S&P, and 75% less than PFIX2. Why has RISR been able to weather this volatility so well?
Our strategy benefits from an inherent diversification from most other markets.
We have a low correlation to equities, commodities, and the highly volatile technology sector.
Our mortgage-related interest-only investments naturally tend to move inversely to the rest of the bond market.
In short, we believe RISR is a great diversifier to many other strategies you might now be invested in.
RISR benefits from significant current income that helps to stabilize returns and cushions price volatility.
Our most recent monthly dividend of $0.12/share equates to an annualized rate of about 4.7%. That is more than 80% of the fixed income ETFs out there, and even compares favorably to some income-based strategies like utilities.3
But unlike utilities stocks, which fall in value when interest rates rise, RISR is designed to increase in value during periods of rising interest rates.
RISR’s MBS IO investment are liquid and transparent, as compared with over-the-counter derivative-based strategies like PFIX.
MBS IOs are issued by government-sponsored agencies including Fannie Mae, Freddie Mac and Ginnie Mae.
Our strategy does not use third-party leverage to achieve its returns.
Our investments are broadly held by a wide range of institutional investors, can be traded by dozens of broker-dealers and are priced by all major independent pricing services. We do not use “model pricing.”
We think RISR provides a distinct risk-return profile not available from any other publicly traded ETF product or index – current income, diversification, low volatility, and a hedge against interest rates risk. This profile can offer benefits to a broad range of investors and strategies seeking to actively manage interest rate risk, while not sacrificing current income in the process.
Please reach out to one of our distribution professionals for more information.
Footnotes
1 The S&P 500 is a broadly followed index of large-capitalization US equities.
2 Source: Bloomberg, L.P. RISR volatility13.4%, S&P 500 volatility 21.3%, PFIX volatility 41.8%. PFIX is an ETF that invests principally in over-the-counter interest rate options with the goal to “provide a hedge against a sharp increase in long-term interest rates.” RISR’s strategy is to invest in mortgage-backed interest only securities that are expected to increase in value as interest rates increase.
3 Bloomberg, L.P. tracks 546 fixed income ETF, of which 452 show a dividend yield less than 4.7%
| Yung Lim | Dean Smith | George Lucaci |
|---|---|---|
| Chief Executive Officer | Chief Strategist and Marketing Officer | Global Head of Distribution |
| Chief Investment Officer | RISR Portfolio Manager | |
| ylim@foliobeyond.com | dsmith@foliobeyond.com | glucaci@foliobeyond.com |
| 917-892-9075 | 914-523-2180 | 908-723-3372 |
Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call (866) 497-4963 or visit our website at www.etfs.foliobeyond.com. Read the prospectus or summary prospectus carefully before investing.
The performance data quoted is past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Performance current to the most recent month-end can be obtained by calling (866) 497-4963 or by clicking here. Due to market conditions the fund has experienced relatively high performance which may not be ongoing or sustainable over time.
Investments involve risk. Principal loss is possible. Unlike mutual funds, ETFs may trade at a premium or discount to their net asset value. The fund is new and has limited operating history to judge. Fund Risks - The value of MBS IOs is more volatile than other types of mortgage related securities. They are very sensitive not only to declining interest rates, but also to the rate of prepayments. MBS IOs involve the risk that borrowers may default on their mortgage obligations or the guarantees underlying the mortgage-backed securities will default or otherwise fail and that, during periods of falling interest rates, mortgage-backed securities will be called or prepaid, which may result in the Fund having to reinvest proceeds in other investments at a lower interest rate. The Fund’s derivative investments have risks, including the imperfect correlation between the value of such instruments and the underlying assets or index; the loss of principal, including the potential loss of amounts greater than the initial amount invested in the derivative instrument. The value of the Fund’s investments in fixed income securities (not including MBS IOs) will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the value of fixed income securities owned indirectly by the Fund. Please see the prospectus for a complete description of principal risks.
Distributed by Foreside Fund Services, LLC.