Rising inflation can have a significant impact on financial markets, often prompting the U.S. Federal Reserve to increase interest rates to control price surges. While higher interest rates help stabilize inflation, they can also erode corporate earnings and lower bond prices. However, certain types of exchange-traded funds (ETFs) are better positioned to perform well in these conditions.
Although there isn’t a specific category of ETFs designed exclusively for rising interest rates, some funds tend to thrive in such environments. Below, we’ll explore the best ETF types to consider and highlight specific funds that can help you build a resilient portfolio.
ETFs That Perform Well in Rising Rate Environments
Here are the key types of ETFs that typically perform better when interest rates are on the rise:
1. Short-Term Bond ETFs
Short-term bond ETFs are less sensitive to interest rate changes compared to long-term bonds. Bonds with shorter durations experience smaller price declines in response to rising rates, making these funds a safer choice during such periods.