A number of great exchange traded fund (ETF) options are available for investors looking to hedge their portfolios. Whether one is considering precious metals, options hedged, or currency hedged ETF's, the range of possibilities is mind-numbing.
In this article, I'm going to discuss an ETF which tracks long dated government bonds for investors seeking a fixed income hedge.
The iShares 20+ year Treasury ETF (NASDAQ:TLT) is one of the most traded ETFs tracking long-dated government bonds. This ETF benefits from lower interest rates and bond yields, a trend which has continued for decades.
In a scenario where interest rates continue to drop closer to zero or even turn negative, investment in this ETF could turn out to be very profitable.
This ETF certainly represents a pure hedge against an equity only portfolio, as this fund will generally only do well in a period of economic weakness when monetary stimulus is needed.
With central banks indicating the need to keep interest rates near zero for the next few years, the stars seem to have aligned for current investors in TLT.
While the path to lower bond yields is theoretically limited, and we're already so close to zero from a yield standpoint, investors will always invest in government bonds when times get difficult.
Invest wisely, my friends.
