VelocityShares has rolled out two new composite forward LIBOR rate-linked exchange traded notes to help fixed-income investors better manage risks in a rising interest rate environment.
On Wednesday, VelocityShares launched the VelocityShares Long LIBOR ETNs (NYSEArca: ULBR) and the VelocityShares Short LIBOR ETNs (NYSEArca: DLBR). Both ETNs have a 1.50% expense ratio.
Both new ETNs are linked to a Janus Velocity LIBOR Index.
According to the prospectus, the Long LIBOR Index tries to reflect the daily performance of a long investment in the composite forward LIBOR rate by tracking the return on a short position in Eurodollar futures contracts where the position is recalibrated daily to result in a return that approximates the percentage change in the composite forward LIBOR rate over the next day. If the composite forward LIBOR rate is less than the long LIBOR floor of 1.00% on an Index Business Day, the Long LIBOR Index will try to approximate only a portion of the percentage change in the composite forward LIBOR rate over the next day.
The Short LIBOR Index tracks the return on a long position in Eurodollar futures contracts where the position is recalibrated daily to result in a return over the next Index Business Day that approximates to the inverse of the percentage change int eh composite forward LIBOR rate over the next day. If the composite forward LIBOR rate is less than the short LIBOR floor of 2.50% on any Index Business Day, the Short LIBOR Index will try to approximate only a portion of the inverse of the percentage change in the composite forward LIBOR rate over the next day.
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The composite forward LIBOR rate on each day is equal to the weighted average of the forward 30month U.S. dollar LIBOR rates implied int he daily settlement prices of the next eight quarterly Eurodollar futures contracts.
LIBOR, or also known as the London interbank offered rate, is the average rate at which London’s banks are charged when borrowing from other banks, or similar to how the Fed fund rates operate in the U.S.
“In today’s unique interest rate environment, many investors are looking for tools that can be used to manage interest rate risks, and we are very pleased to provide the first ETNs allowing them to do so with daily exposure to the composite forward LIBOR rate,” Nick Cherney, Senior Vice President, Head of Exchange Traded Products for Janus Henderson, said in a note.
For more information on new fund products, visit our new ETFs category.