There are various themes in ETF products. ETFs that invest in interest rates are also popular as interest rate fluctuations increase and interest in assets related to interest rates rises. TMF could be a prime example.
- Overview of TMF
- TMF Price
- Considerations When Investing in TMF
- Popular Investment Information
Overview of TMF
- Investment Strategy
- This ETF applies 3x leverage to the 20+ Year Treasury Bond Index, potentially offering high returns to investors who anticipate a decline in US interest rates.
- Asset Management Company: Rafferty Asset Management
- Operates the ETF brand Direxion and manages various leveraged ETF products.
- Inception Date: August 2009
- Leverage Level: 3x
- TMF tracks the NYSE 20 Year Plus Treasury Bond Index, aiming to triple the index’s movements, both upwards and downwards.
- This implies very high volatility, meaning there is a significant risk of achieving either 3x the index’s returns or 3x its losses.
- Assets Under Management: 5 billion dollars
- Expense Ratio: 1.04%
- Leveraged investment products generally have higher costs than typical index-tracking ETFs.
- Distribution rate: 1.97%
- TMF distributes every quarter
TMF Price
- TMF Stock Price Comparing the performance with the TLT ETF, which tracks the same index as TMF, the blue line represents TMF and the yellow line represents TLT.
Recent 1 Month
In the short span of the last month, there has been a slight increase. There’s a segment where it gained about ~10%, easily indicating high volatility.
Recent 6 Months
Over the past 6 months, as interest rates rose somewhat, TMF’s performance was not good, showing a 9% decline. The volatility is higher compared to TLT.
Recent 1 Year
The performance over the past year has been even worse, with a 40% decline due to the impact of interest rate fluctuations.
Recent 5 Years
After the end of COVID-19, as U.S. interest rates rose sharply, the performance significantly dropped to about one-third of its value during the low-interest period. For investors considering this as the asset price’s low point, the chart could appear as an opportunity for profit.
Considerations for Investing in TMF
[Interest Rate Direction]: The direction of interest rates is a critical factor for this asset.
- The performance of TMF is entirely dependent on the rise or fall of U.S. Treasury bond yields. Therefore, it is necessary to pay attention to the future outlook of interest rates. Considering the recent U.S. economic situation, the uncertainty regarding interest rate cuts is increasing. This means that the performance of TMF could potentially be poor.
- Even when the Consumer Price Index (CPI) for February, released on March 12, exceeded market expectations, traders initially dismissed the stubborn inflation as a temporary phenomenon.
- However, there is now growing concern in some financial markets that the Federal Reserve might not cut interest rates three times this year.
- Phil Towse, CEO and Portfolio Manager of Towse, which manages $1 billion in assets, pointed out to MarketWatch, “The market has been constantly optimistic about the Federal Reserve’s monetary policy over the last two and a half years and has underestimated the Fed’s resolve to tighten at every turn.”
- He continued, “Now, the market seems overly optimistic about the Fed’s ability to ease monetary policy. We now need to consider that the Fed might freeze interest rates until the summer or even feel the need to raise them again.”
[3x Leverage]: Understanding volatility is necessary for this asset.
- TMF is not just an asset that tracks an index but uses leverage on the movements of the index. Since the leverage level is 3x, a thorough understanding of this is required.
- If the price rises, the performance will be three times that of the index, allowing for high returns in a short period. However, the opposite scenario could lead to significant losses in a short period as well. This asset’s high volatility must be considered.
- Generally, such highly volatile assets are not considered suitable for long-term investment and are known to be inappropriate for retail investors, as opposed to professional investors.
Popular Investment Information
LABU, SOXL, and YINN Leveraged ETFs Comparison(2024)
JEPI and JEPQ ETF – Summary of US Dividend Stock(24)
VOO vs. VTI vs. VT Vanguard Best Comparison (’24)
TLT ETF Dividend and Price Outlook – U.S. Bond Investment (’24)
QQQ vs. SCHD vs. O vs. VOO vs. Apple – Stock comparison(24)
Disclaimer
- This article is not written to solicit investments.
- The information provided may not be accurate due to differences in the reference period, so investors are advised to verify it themselves.
- The decision and responsibility for investments lie with the individual investor, and the author of this article does not bear any responsibility for the investment results of the readers.
The copyright of this article belongs to seekingtopetf.com.