The exchange traded fund business could soon include a floating-rate bond ETF for investors worried about rising interest rates. BlackRock (BLK), which manages the iShares ETFs, filed for a fund that will hold dollar-denominated, investment-grade floating-rate bonds as a way to hedge against fluctuating interest rates, writes Cinthia Murphy for IndexUniverse. The bonds will fluctuate less in value as compared to bonds with fixed yields when interest rates change.
Floating-rate bonds usually come from borrowers who are highly leveraged since they are issued for recapitalization needs and acquisitions. iShares noted that these types of bonds are often less transparent.
The filing with the SEC states that the new ETF will hold notes with maturity dates between one month to five years and have at least $300 million in assets.
The new ETF will try and reflect the performance of the Barclays Capital U.S. Floating Rate Note <5 Years Index, which is a market-capitalization weighted benchmark with 281 issues. The funds will employ a sampling strategy. The index is rebalanced monthly.
The filing also notes that futures and options instruments may also be included in the fund’s portfolio.
Almost a fourth of all bond sales in the U.S. this year have been the floating-rate kind, MarketWatch recently reported.
Max Chen contributed to this article.