Income Without the Volatility: Finding Yield in USFR | ETF Trends

Fixed income has been all the rage this year, with yields at such low amounts of risk that many investors are looking at the previously staid area with more excitement than ever. Amid a back and forth surrounding whether it makes sense to go for duration right now, investors and advisors alike may instead want to turn away from duration risk and find yield in the WisdomTree Floating Rate Treasury Fund (USFR), which has seen significant flows momentum over the last month.

Volatility is on the mind of many in the markets right now, even despite earnings season hitting less painfully than some had expected. At VettaFi, VIX-related strategies have picked up interest of late, which suggests that investors already have volatility on the mind, but rather than going for leveraged or daily-traded ETFs, the yield in USFR could be the place to be.

See more: “The ABCs of FRNs: Get Floating Rate Note Yields in USFR”

USFR has added $367 million over the last month alone, on top of $4.5 billion in the last six months, bringing it to $15.2 billion. As a refresher, USFR’s index, the Bloomberg U.S. Treasury Floating Rate Bond Index, invests in floating rate notes (FRNs), a debt instrument introduced back in 2013. FRNs reset their coupon rate weekly based on the most recent 90-day T-bill auction, basically eliminating duration risk entirely — a relevant point as many investors are watching how the Fed will play the rest of 2023.

USFR is offering a 4.69% distribution yield and a 5.3% embedded income yield as of now, while it has also outperformed both its ETF Database Category Average and its Factset Segment Average over the last month. What’s more, USFR offers a 2.9% annual dividend yield, and a stronger annual dividend rate than either average, as well, according to VettaFi.

With yields up in the 4 plus range, combined with the low risk from investing in U.S. government debt securities, it’s hard to resist adding the strategy to a fixed income shortlist. For those who want to park their cash in a fixed income strategy and use it as a fulcrum to move elsewhere as the market shifts, the yield in USFR makes it very hard to ignore as a leading option to consider.

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