ETF Trends publisher Tom Lydon discussed the VanEck Vectors Investment Grade Floating Rate ETF (FLTR) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
A floating rate ETF can offer steady income potential with diminished rate risk – floating-rate notes or debt securities more or less negate the negative effects of rising interest rates on the debt securities’ principal.
Many investors anticipate the Federal Reserve to continue with its tighter monetary policy, including three rate hikes this year.
The notes have a so-called reset period with interest rates tied to a benchmark, such as the Fed funds, LIBOR, prime rate or U.S. Treasury bill rate. Due to their short reset periods, these floating rate funds have relatively low rate risk.
FLTR tracks investment-grade bonds with a floating rate component, which automatically adjust at periodic intervals in response to changes in the interest rates. It is comprised of corporate debt, so the yield is higher.