As fixed-income investors consider ways to hedge their portfolio against the negative effects of rising interest rates, consider a rules-based floating rate bond ETF to generate attractive yields without worrying about rate risks.
If fixed-income investors want to put their cash to work but are not ready to commit to long-term risks, some may consider a floating rate bond ETF, such as the VanEck Vectors Investment Grade Floating Rate (NYSEArca: FLTR) to act an alternative to traditional cash instruments. FLTR shows a 2.24% 30-day SEC yield and an effective duration of 0.10 years.
Ed Lopez, head of ETF product management at VanEck, argued that FLTR is not your typical floating rate bond ETF as it is constructed more like a smart beta strategy.
“FLTR has an index bias to longer maturity floating rate notes,” Lopez told ETF Trends in a call.
The floating rate bond ETF’s portfolio includes 49.7% notes with a 3 to 5 year maturity, 25.7% with a 1 to 3 year maturity and 17.2% with a 5 to 7 year maturity. The portfolio shows an average maturity of 3.83 years.
“The ETF goes out longer on the yield curve, gets higher yields and still maintains short duration,” Lopez said.