Thursday, March 30, 2023
HomeMarketFed’s Move To Boost Rates Makes Winners Out of These 6 ETFs

Fed’s Move To Boost Rates Makes Winners Out of These 6 ETFs

High-dividend ETFs benefit from rising interest rates.

- Advertisement -

Graeme Sloan/Bloomberg

Strong retail sales and jobs data combined with a mixed report on inflation raises the expectations of an interest-rate hike by the Federal Reserve come March—and that could benefit a select group of exchange-traded funds.

A hawkish Fed rate policy supports defensive stocks like healthcare, industrial, utilities and financials. Stocks benefitting from higher real implied fed-funds rate outperformed interest-rate-sensitive stocks by 3.6% last week, Dennis DeBusschere, founder of quant and technical analysis firm 22V research wrote Monday. The real fed-funds rate is simply the effective fed rate, minus inflation data, as measured by the Personal Consumption Expenditures index.

Because economic indicators have looked surprisingly robust recently, there are growing fears that the Fed will re-accelerate its rate-rising campaign and pass another half-point rate increase. “Rumblings of a 50-basis-point rate hike at the next FOMC meeting have emerged,” said Louis Navellier, founder of growth investing firm Navellier & Associates in a note Thursday, citing Cleveland Fed President Loretta Mester’s hawkish comments at a business university in Florida. Mester doesn’t have a vote on the committee.

Such fears benefit ETFs that do better in a risk-off environment, focused on dividends, quality and low volatility. Here are six ETFs, as listed by 22V Research on Wednesday, with more than $100 million in assets under management and a track record of five years or more, clocking the highest positive correlation to a rising real implied fed-funds rate.

Amplify CWP Enhanced Dividend Income ETF
(DIVO): The ETF invests in dividend-paying U.S. securities or mature companies earning enough cash to return some to shareholders and has a nearly 90% correlation to rising rates. It had a total loss of 1.5% last year, much better than the 18% decline marked by
SPDR S&P 500 ETF Trust
(SPY), which tracks the
index. On a five-year annualized basis, it has returned 10.7% per annum, slightly better than the S&P’s 10.6%.

Pacer Global Cash Cows Dividend ETF
(GCOW): With an 88% correlation to rising rates, Pacer’s ETF provides exposure to global companies with high dividend yields backed by high free cash flow yield, or companies generating more cash against their market value per share. The ETF has returned 6% over a five-year annualized period and includes German and Australian businesses like the
Bayerische Motoren Werke AG
or BMW (BMW.XE) and
Fortescue Metals Group
(FMG.AU), respectively.

WisdomTree U.S. Quality Dividend Growth Fund
(DGRW): Wisdom Tree’s buyback-focused offering has a growth tilt and an 87% tailwind from higher rates. It invests in tech companies with stable sales like
Microsoft (MSFT),

(AAPL), but also consumer defensive stocks like
(KO) and
Philip Morris International
(PM). The five-year track annualized record shows a return of 11%

Franklin International Low Volatility High Dividend Index ETF
(LVHI): The ETF with an 86% positive correlation to higher rates, provides a combined exposure of nearly 30% to companies in Japan and U.K. with higher yields and low volatility. The ETF’s standard deviation, or volatility measure, at 15.61 is lower than the S&P’s 21.34. Its sector weightings lean primarily toward financial services companies like Singapore-based bank
DBS Group Holdings
(D05.SG). Five-year annualized performance stands at 7%.

Hartford Multifactor US Equity ETF
(ROUS): The fund with an 84% correlation to higher rates has the most exposure to the value factor among its stocks, followed by momentum and quality factors. It heavily leans on technology and financial services companies like
Berkshire Hathaway
(BRK.A) Five-year performance is 7%.

ProShares Short 20+ Year Treasury
(TBF): The ETF with an 82% correlation to rising real implied fed-funds rates, offers the inverse performance of the U.S. Treasury 20-plus year bond index. Higher-duration bonds fare much worse than shorter-duration ones in a rising rates environment, which should drive the ETF’s performance. That said, inverse ETFs are extremely risky bets meant for short-term trading and no one should park their cash in them for longer than a day as they rebalance everyday.

Write to Karishma Vanjani at


- Advertisment -

Most Popular