Global X launches two options-based ETFs for portfolio hedging

Global X has launched two new actively managed ETFs in the US that utilize option strategies to hedge against inflation and interest rate risk.

The Global X Interest Rate Hedge ETF (IRHG US) and Global X Interest Rate Volatility & Inflation Hedge ETF (IRVH US) have been listed on NYSE Arca with expense ratios of 0.45% each.

Global X notes that inflation is running at decades-high levels, having spread across the entire supply chain from components and commodities all the way to end-consumer products.

Meanwhile, a tight labor market, high energy prices, supply chain issues, and a strong consumer imply that these elevated levels of inflation are unlikely to dissipate in the near term, leading central banks to pursue aggressive monetary tightening policies.

At last month’s meeting, the Federal Reserve raised its key rate by three-quarters of a point (the biggest single increase in nearly three decades) to a range of 1.5% to 1.75% while also signaling that further hikes of a similar magnitude would likely be needed.

In response to these challenging market conditions, Global X has developed its two latest funds to provide investors with the means to enact portfolio hedges in a low-cost manner with the liquidity benefits of the ETF vehicle.

The Global X Interest Rate Hedge ETF is designed to be functionally similar to owning a position in long-dated put options on long-term US Treasury bonds through the use of derivatives contracts. The fund uses interest rate payer swaptions which offer investors the ability to hedge interest rate risk in their fixed income portfolio allocation. Unlike traditional fixed income instruments, the fund benefits when interest rates rise.

The Global X Interest Rate Volatility & Inflation Hedge ETF, meanwhile, combines over-the-counter options on interest rate markets with US Treasury Inflation-Protected Securities (TIPS). The strategy seeks to hedge relative interest rate movements arising from a steepening of the US interest rate curve and to benefit from periods of market stress when interest rate volatility increases, while also providing inflation-protected income.

Commenting on the launches, Rohan Reddy, Director of Research at Global X, said: “Options-based strategies can help to ameliorate the difficult market conditions that investors face in inflationary and rising rate environments. Compared to traditional equity market opportunities, interest rate strategies using options can provide greater diversification and potentially stronger risk-adjusted returns in a rising rate environment.

“While we continue to see headwinds in the market, IRHG and IRVH combine Global X’s expertise in options-based strategies with active management to offer alternatives for investors looking to diversify or hedge their portfolios against interest rate and inflationary risks.”