Why Corporate Floating Rate ETFs Are Trendy


Investors looking to move beyond government debt with floating rate bond funds can look to ETFs like the SPDR Barclays Investment Grade Floating Rate (NYSEArca: FLRN).

FLRN tracks the Bloomberg Barclays US Dollar Floating Rate Note according to State Street Global Advisors (SSgA).

FLRN’s 669 holdings include investment grade bonds with a floating rate component, which automatically adjust at periodic intervals in response to changes in interest rates.

Variable rate notes, as the name suggests, have a variable interest rate. Specifically, the Notes have a so-called reset period with interest rates linked to a benchmark index, such as Federal Funds, LIBOR, Prime Rate, or the US Treasury Bill rate. Due to their short reset periods, these floating rate funds present a relatively low rate risk.

Highlights on the “FLRN”

The adjusted duration of FLRN options is only 0.09 years, indicating that the fund has reduced sensitivity to rising Treasury yields. Even with this advantage, FLRN’s current return of 2.92% is decent. The fund is nearly seven years old and manages $ 3.42 billion in assets.

“Index securities must have a maturity of more than one month and less than five years, and $ 300 million or more face value outstanding,” according to SSgA.

FLRN rebalances itself on the last business day of each month.


Comments are closed.