ETF Chart of the Day: iShares Floating Rate Note

ETF Trends

FLOT (iShares Floating Rate Note ETF, Expense Ratio 0.20%) debuted in June of 2011, and is starting to hit its stride in terms of traction gained among institutional portfolio managers that are utilizing ETFs in their processes.

Back on February 12  we highlighted FLOT in this report, and apparently someone has been paying attention as the ETF traded north of 8 million shares on 4/8/13, reeling in nearly $600 million this week alone.

In fact, the fund is among the net inflows leaders in recent sessions across all ETPs, despite not being necessarily a “household name” yet.

In the past 24 months, leveraged bank loans have been a very popular and growing segment of ETFs among portfolio managers, as evidenced by the growth in BKLN (PowerShares Senior Loan Portfolio, Expense Ratio 0.66%) as investment
managers continue to seek opportunities for yield in their portfolios.

FLOT does not invest in bank loans, but instead focuses on investment grade floating rate notes, which are a bird of a different feather. [Floating Rate ETF Triples in Size]

Bank Loans (loans that are made to high yield companies) are typically secured by the collateral of the issuer, and are rated below investment grade and pay a floating rate coupon. Settlement typically occurs within 5 to 40+ days in bank loans, while Floating Rate Notes typically settle T+3.

These notes are typically unsecured securities, and issued in the capital markets and rated investment grade, while also paying floating rate coupons like Bank Loans.

The bottom line is that despite the differences, both of these segments of the fixed income market as it pertains to ETFs a) did not exist just two years ago in ETF form and b) clearly have broad appeal to portfolio managers that are already using ETFs as part of their overall fixed income allocations.

From a daily volume standpoint, ADV is currently about 485,000 shares, with that number steadily growing thanks to trading days like the one from earlier this week. However, like many “niche” products, trading volume can be “hit or miss” on any given trading day, but that does not mean that one cannot put a meaningful amount of money to work in the product and get sensible executions, given the willingness to make a few calls.

iShares Floating Rate Note ETF

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For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

Story updated to correct expense ratio for BKLN.

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