A New Bond ETF With Rising Rates Protection

Upstart exchange traded funds issuer ClearShares added its second ETF last week with the debut of the ClearShares Ultra-Short Maturity ETF OPER.

“The OPER ETF seeks to fill the return void and provide an alternative to low yielding money market and non-yielding cash positions through short-term fixed income securities,” according to the issuer.

What Happened

The new ClearShares ETF aims to generate income by investing in repurchase agreements backed by U.S. government debt.

“A repurchase agreement is a type of agreement under where the fund acquires a financial instrument, such as a debt security issued by the U.S. government, from a seller,” reports ETF Trends. “At the time of purchase, the seller agrees to repurchase the underlying security at a mutually agreed-upon price on a designated future date – normally, the next business day. The securities acquired will generally have a total value in excess of the repurchase agreement’s value and will be held by the fund’s custodian until the securities are repurchased. Investors may think of repurchase agreements as a loan collateralized by securities.”

Why It's Important

Repurchase agreements, or “repos,” are strictly short-term investments, which helps minimize OPER's sensitivity to higher interest rates.

“The tri-party repo is the most common type of repo making up over 90% of the repo market,” according to ClearShares. “In this type of arrangement, the clearing agent or bank, conducts the transactions between buyer and seller protecting the interest of each, handling all settlement and operational issues.”

OPER is actively managed and charges 0.30 percent per year, or $30 on a $10,000 investment. The new ETF debuted with $20 million in assets under management.

What's Next

OPER can also hold short-term Treasuries and agency debt, including mortgage-backed securities (MBS).

“The OPER ETF seeks to fill the return void and provide an alternative to low yielding money market and non-yielding cash positions through short-term fixed income securities. These high-grade securities adjust the interest they pay accordingly as the U.S. Federal Reserve changes market interest rates. As such, OPER ETF investors could benefit from a rise in return as rates increase, and will not be left behind as witnessed from the low returns paid on savings and time deposit accounts,” according to ClearShares.

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