ETFs to watch ahead of next week’s Fed rate decision

Federal Reserve System Fed of USA press conference concept. Microphones TV and radio channels with symbol and flag of US Federal Reserve. 3d illustration


The Federal Reserve is set to announce the results of its next policy decision next week, with markets widely anticipating another significant increase in interest rates. There are a couple of key exchange traded funds to watch ahead of the news, with the ProShares Investment Grade—Interest Rate Hedged ETF (BATS:IGHG) and the Simplify Interest Rate Hedge ETF (NYSEARCA:PFIX) providing investment vehicles surrounding Fed policy.

The Fed's rate-setting committee will declare the results of its meeting on Wednesday, Sept. 21. The market has currently priced in a 20% chance that the central bank will unveil a 100 basis-point hike. Meanwhile, there is currently an 80% chance the central bank will announce a 75 basis-point rate hike.

IGHG is a fund that targets zero interest rate risk by including a built-in hedge against rising rates as it uses short positions in U.S. Treasury futures. PFIX, on the other hand, looks to hedge against interest rate movements coming from rising long-term interest rates, and it also aims to benefit from market stress when fixed income volatility increases.

IGHG is attached with a 0.30% expense ratio and has $463.11M assets under management. Moreover, the fund is -6.8% in 2022.

PFIX comes with a more expensive 0.50% cost ratio and has $302.43M assets under its belt. Additionally, the ETF is +59% year-to-date.

Ahead of the rate announcement BofA stated: “We look for a 75bp rate hike in September.” Taking a more hawkish view, Nomura said: “Upside inflation risks are likely to result in the Fed raising rates by 100bp at the September FOMC meeting.”

In broader financial news, major market averages and their accompanying mirrored ETFs (SPY), (VOO), (IVV), (QQQ), and (DIA) are all in the red with the market's set to make it four down weeks out of the last five.

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