“FLOT can serve several roles in an investor’s portfolio,” commented Matt Tucker, iShares Head of Fixed Income Strategy at BlackRock. “It can provide investors with an opportunity to reduce exposure to interest rate risk in the portfolio. In addition, it can serve as a diversifier within traditional fixed income, as well as multi-asset class portfolios. Investors can also use FLOT to gain exposure to credit with less interest rate exposure or as a complement other short duration strategies.”
However, investors need to be aware that the securities are unsecured obligations of the issuer, which means that invetors will still have to watch for credit risks of the issuer, writes Matt Tucker for iShares Blog. As credit spreads widen, floating rate notes may begin to dip. Additionally, floating rate notes should not be confused with floating rate loans, which are more commonly known as bank loans or leveraged loans.
For more information on bond related ETFs, visit our bond ETFs category.
Max Chen contributed to this article.