Brett Manning, senior markets analyst at Briefing.com, says this ETF has an intriguing concept because people are beginning to realize the problems rising interest rates may cause portfolios.

“From a marketing standpoint it’s a great idea,” he says, but in the current environment the fund’s structure creates losses.

The fund is in a negative carry at the moment, which makes the cost of holding the ETF more than the yield earned, he says.

As Manning explains it, RISE appears right now to be suffering a problem that’s common to the world of commodity ETFs—namely, negative roll yield. In the case of RISE and its positions in Treasuries, for it to hold a position the fund has to exit the expiring futures month and enter a new contract month by buying back the sold position (covering the short) and selling the new contract month. Currently, the two- and 10-year bond futures price curve shows values falling into the future, known as backwardation. As a result, Manning says, they’re covering high and shorting low when they need to exit.

“It also seems to be a little more expensive in fees,” he says. “It seems to be an admirable mission but I’m not exactly jumping to buy it to hedge my own interest rate exposure. If interest rates go sideways, that’s the problem with backwardation and negative carry. You’re going to lose money on that, plus the fees, if you don’t get a rising rate environment.”

And these inverse bond ETFs are losing money because of the negative carry.

Doty says the combination of negative carry and expenses for RISE is at 3 percent, but if RISE comprised just 10 percent of an investor’s portfolio it would cost them 30 basis points. He says the fund compares favorably in that regard to another inverse bond fund that he sees as RISE’s biggest competitor, the ProShares UltraShort 20+ Year Treasury ETF (TBT), where the negative carry and expense are somewhere between 7 percent and 8 percent because that fund goes out further on the interest rate curve.

“The two-year yield is so low so the negative carry is low,” Doty notes. “The negative carry in the futures contract is dependent on the yield of the underlying Treasury, and the difference between that and the LIBOR (London Interbank Overnight Rate).”

Simply shorting a fund like the iShares 20+ Year Treasury Bond ETF (TLT) also opens the portfolio to more duration risk, and some advisors can’t short ETFs, he says.

The RISE fund is designed for someone who wants more stability or downside protection in their portfolio, Doty says, adding that he has clients who will handle a 5 percent to 10 percent loss in the stock side of their allocation without an issue “but freak out” if the bond side goes down 1 percent.