State Street Lists Floating-Rate Bond ETF
December 2nd, 2011 at 9:49am by Tom Lydon
State Street Global Advisors (SSgA), the asset management business that sponsors the SPDR exchange traded funds, including the world’s two largest ETFs, on Thursday launched two new fixed-income ETFs, one that tracks floating-rate bonds and the other that follows short-term U.S. treasuries.
SPDR Barclays Capital Investment Grade Floating Rate ETF (NYSEArca: FLRN) tries to reflect the performance of the Barclays Capital U.S. Dollar Floating Rate Note <5 Years Index, which tracks U.S. dollar-denominated, investment grade floating rate notes. FLRN has an expense ratio of 0.15%. It will compete with Market Vectors Investment Grade Floating Rate Bond Fund (NYSEArca: FLTR) and iShares Floating Rate Note Fund (NYSEArca: FLOT). [ETF Safeguards Against Rising Rates]
The fund’s sector allocations include government-related at 23.24% and corporate at 76.76%. Sub-sector allocations include: agency 20.10%, local authority 1.13%, sovereign 0.14%, supranational 1.88%, industrial 12.33%, utility 0.43% and financials 64.00%.
As a result of the historically low interest rates and some benchmarks at near zero returns, investors have sought out yields in other areas of the market, including floating rate debt. Floating rate debt are not sensitive to interest rate moves, and payouts tend to move based on adjustments to a specified reference rate.
“With cost efficient access to floating rate notes, an asset class that is also well positioned for a rising rate environment and features low correlations to many traditional equity and fixed income investments, the SPDR Barclays Capital Investment Grade Floating Rate ETF offers a compelling solution to investors seeking to enhance the diversification of their bond portfolio,” James Ross, senior managing director and global head of SPDR Exchange Traded Funds at State Street Global Advisors, said in a press release.
SPDR Barclays Capital Short Term Treasury ETF (NYSEArca: SST) tries to reflect the performance of the Barclays Capital 1-5 Year U.S. Treasury Index, which tracks U.S. Treasuries that have a remaining maturity of greater than or equal to 1 year and less than 10 years. SST has an expense ratio of 0.12%. The fund has an average yield to worst of 0.45% with a modified-option adjusted duration of 2.69 years.
“With short-term interest rates near zero, the potential for a rising interest rate environment is a concern for many investors in long-term Treasury bonds,” Ross added. “The launch of the SPDR Barclays Capital Short Term Treasury ETF enhances our short-term government bond SPDR ETF offering.”
For more information on new ETFs, visit our new ETFs category.
Max Chen contributed to this article.
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