Investors concerned about rising interest rates are taking a closer look at ETFs that track corporate floating rate bonds.
Floating rate securities “have a far lower interest rate sensitivity than their fixed rate brethren, making them ideal choices in rising interest environments,” according to Zacks Investment Research.
ETFs in this category include Market Vectors Investment Grade Floating Rate Bond Fund (NYSEArca: FLTR), SPDR Barclays Capital Investment Grade Floating Rate ETF (NYSEArca: FLRN) and iShares Floating Rate Note Fund (NYSEArca: FLOT).
Market Vectors Investment Grade Floating Rate is designed for investors looking for a short-term bond alternative, said Morningstar analyst Timothy Strauts. “The fund’s short duration will help it weather a rising-interest-rate environment better than longer-duration products,” he wrote in a report on the ETF.
The asset class is “well positioned for a rising rate environment and features low correlations to many traditional equity and fixed income investments,” said Jim Ross, global head of SPDR ETFs at State Street Global Advisors.