5 ASX ETFs to navigate rising interest rates

Commentary from economists and experts is now pointing towards the possibility of continued interest rate hikes. 

A new report from Global X has shed light on how investors may be able to position themselves should this come to fruition. 

According to the report, the RBA remains in a tightening posture as inflation pressures persist, including from geopolitical-driven energy shocks such as Middle East tensions. This reinforces the need for portfolios designed to remain resilient through a higher-for-longer rate regime.

Here are 5 ASX ETFs the provider believes could be worth considering. 

Global X Australian Bank ETF (ASX: BANK)

This fund invests in a diversified portfolio of Australian banking debt across the full capital structure. 

Global X said the portfolio of floating rate notes through both senior and subordinated credit and hybrid securities allows investors to benefit from rising income as rates increase, while still retaining a modest allocation to fixed-rate bonds that may provide upside should the rate cycle eventually reverse.

These securities have coupons that reset periodically in line with interest rates, meaning income rises as rates move higher. As a result, they can offer a more resilient income stream while experiencing less capital volatility compared to fixed-rate bonds.

Global X S&P/ASX 300 High Yield Plus ETF (ASX: ZYAU)

This fund invests in 50 high-dividend stocks from the S&P/ASX 200 Index.

Global X argues that with Australian dividend yields near multi-decade lows and the total amount of dividends decreasing over the last few years, relying solely on broad market income may no longer be sufficient. 

Instead, investors can consider a combination of high dividend equities and options-based strategies.

By focusing on companies with higher forecast dividend yields, investors may be able to capture an incremental yield premium of close to 1% relative to the broader benchmark, while still maintaining sector diversification and applying disciplined screening to avoid potential dividend traps.

Global X S&P/ASX 200 Covered Call Complex ETF (ASX: AYLD)

This fund uses a “covered call” or “buy-write” strategy in an effort to generate yield enhancement over and above dividends and franking. 

Global X believes this strategy could be successful during high interest rate environments or during periods of volatility. 

These strategies can generate additional income by selling call options over an equity portfolio. Importantly, option premiums are partially driven by the risk-free rate.

As rates rise, the cost of protection increases, which can lead to higher premiums for option sellers. Moreover, covered call strategies tend to outperform during sideways and downward markets. This creates an opportunity to enhance portfolio income while potentially dampening volatility.

Global X Bloomberg Commodity ETF (Synthetic) (ASX: BCOM)

This fund invests in a highly liquid, broad-based basket of commodities, including energy, grains, precious metals, industrial metals, softs and livestock.

Global X said materials and energy sectors tend to exhibit a positive relationship with inflation. 

Commodity producers also benefit from rising input prices, which can translate into stronger revenues.

For Australian investors, this is particularly relevant given the market’s natural tilt toward resources. Examining previous rate hiking cycles, energy and materials have typically been standout performers relative to other sectors, reflecting their sensitivity to inflation dynamics and their ability to benefit from elevated commodity prices and supply-side constraints.

Etfs Metal Securities Australia – Etfs Physical Gold (ASX: GOLD)

This ASX ETF delivers investors a return mirroring the growth in the Australian dollar gold price, minus the annual management fee.

The provider pointed towards historical data that suggests during times of inflation, precious commodities such as gold have outperformed. 

The post 5 ASX ETFs to navigate rising interest rates appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Bell has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.