U.S. Markets closed

Even With Fed Considering Lower Rates, Floating Rate ETFs Are Useful

This article was originally published on ETFTrends.com.

Floating rate notes (FRNs) and the related exchange traded funds received plenty of attention last year as the Federal Reserve hiked interest rates four times, but the asset class is still useful even with the Fed mulling a rate cut or two this year.

Floating rate notes, like the name suggests, have a floating interest rate. Specifically, 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.

Exchange traded funds, including the iShares Floating Rate Bond ETF (CBOE: FLOT ), deliver access to floaters.

FLOT “seeks to track the investment results of an index composed of U.S. dollar-denominated, investment-grade floating rate bonds with remaining maturities between one month and five years,” according to iShares.

“When rates rise, they offer higher coupon payments and their prices don't fall as much as fixed-rate bonds. In contrast, most funds in the ultrashort-bond Morningstar Category invest in fixed-rate corporate and government bonds with less than three years remaining until maturity," said Morningstar in a note out Friday. “The fund effectively protects against rising rates, but it does take moderate credit risk and loses out when rates fall.”

Examining FLOT ETF

The $9.81 billion FLOT tracks the Bloomberg Barclays US Floating Rate Note < 5 Years Index and holds 685 bonds. FLOT has a 30-day SEC yield of 2.75% and an effective duration of just 0.14 years.

“Floating-rate bonds are debt obligations with variable interest payments,” according to Morningstar. “Their coupons typically adjust every three months to reflect changes in Libor. These instruments tend to perform well in a rising-interest-rate environment. In this environment, the fund's coupons are adjusted upward, while the value of fixed-rate bond funds tends to decline. On the other hand, when interest rates fall, the prices of fixed-rate bonds gain and floating-rate bonds' coupons are adjusted downward. Even though both groups have a short duration, they behave differently.”

The bulk of FLOT's holdings are rated A or BBB with some residing in the AAA or AA range. Morningstar has a Bronze rating on the fund.

For more on the bond market, visit our Fixed Income Channel.

POPULAR ARTICLES AND RESOURCES FROM ETFTRENDS.COM

READ MORE AT ETFTRENDS.COM >

  • Politics
    Bloomberg

    Warren Responds to ‘Angry Dad’ Over Student Loan Plan

    In a clip shared on an anonymous pro-Trump Twitter account Tuesday and amplified by conservative media, an unnamed man tells Warren that he gave up vacations and saved money for his daughter's education so that she wouldn't have debt. Asked about the clip in an interview on “CBS This Morning,” Warren responded that younger Americans are getting “crushed” by student loan debt, which is roughly $1.5 trillion.

  • ‘Kids that don’t fail are normally frugal.' Wealth advisers say Meghan and Harry’s lifestyle already raises red flags
    News
    MarketWatch

    ‘Kids that don’t fail are normally frugal.' Wealth advisers say Meghan and Harry’s lifestyle already raises red flags

    Meghan and Harry Windsor aren't the first people to try to quit the safety of a rich family and try to go it alone, and they won't be the last. Chief among them: Reports that the couple is looking to buy a mansion in Vancouver on the market for $36 million Canadian dollars ($27 million in U.S. dollars), already dubbed a “Megha-Mansion” by the British press. “That is a red flag,” writes Elizabeth Windisch, a financial planner at Aspen Wealth Management in Centennial, Colo., in an email, “they really couldn't find a nice, secure home for, say, $15 million.” Others agree.

  • Business
    U.S.News & World Report

    7 Best Vanguard Funds to Buy and Hold

    It offers a five-year average return of 7.23% and an expense ratio of 0.14%. Year-to-date, VASGX has delivered a 23.13% return. VITSX is one of the best Vanguard mutual funds for buy-and-hold investors who want broad exposure to the stock market as a whole.

  • U.S.
    Financial Times

    Couple plead guilty to swindling Berkshire Hathaway

    A California couple pleaded guilty on Friday in connection with a Ponzi scheme that swindled almost $1bn from American blue-chip companies including Warren Buffett's Berkshire Hathaway and the insurance provider Progressive. Jeff Carpoff pleaded guilty to conspiracy to commit wire fraud and money laundering in a California federal court, while his wife Paulette admitted to charges of money laundering and conspiracy to commit an offence against the US. The couple owned DC Solar, a California-based manufacturer of mobile solar power generators that were used at outdoor concerts, sporting events and on construction sites.

  • 3 Top Dividend Stocks with Over 7% Dividend Yield
    Business
    TipRanks

    3 Top Dividend Stocks with Over 7% Dividend Yield

    These profit-sharing payments give investors a steady income stream – even when market gains are sluggish. As an added appeal, there is no upper limit to a dividend's yield. After three Fed rate cuts in 2019, Treasury bonds are down to the 1.5% to 1.75% range – while the average dividend yield among S&P-listed companies is just about 2%.

  • Retirement: What Happens If a Spouse Dies?
    Business
    Investopedia

    Retirement: What Happens If a Spouse Dies?

    This form names the person or people who will receive your IRA and in what proportions. You can amend the form at any time, but whoever is on the form upon your death will receive the funds—even if they are an ex-spouse or a disinherited child. "If you name multiple people as beneficiaries of one retirement plan, they all take required minimum distributions (RMDs) based on the life expectancy of the eldest beneficiary (i.e., the person who has to take out the largest distributions).

  • Business
    Barrons.com

    Stocks Catch a Cold After Fed Stops Expanding Its Balance Sheet

    In addition to last year's three one-quarter percentage-point short-term rate cuts, the central bank has expanded its balance sheet by over $300 billion since September, when ructions in the repurchase-agreement market led it to inject liquidity. Since then, U.S. stocks' value has jumped by more than $3 trillion. The Fed insists that its operations don't constitute quantitative easing, as it calls its purchases of long-term securities intended to boost stock and bond prices.

  • Britain's Prince Charles appears to snub Pence
    World
    Associated Press Videos

    Britain's Prince Charles appears to snub Pence

    Britain's Prince Charles appeared to snub U.S. Vice President Mike Pence on Thursday during his arrival to the World Holocaust Forum event. Jan.

  • Tesla will mark the beginning of the end for this bull market, warns Ralph Nader
    Business
    MarketWatch

    Tesla will mark the beginning of the end for this bull market, warns Ralph Nader

    Apparently so, according to consumer advocate and former presidential candidate Ralph Nader, who issued a stark warning this week, not only on the electric-car maker's pricey stock, but on the stock market as a whole. “Deep in debt, selling less than 400,000 vehicles last year and challenged by several competing electric car models in 2020, Tesla's stock valuation stunningly exceeds VW which sold over 10 million vehicles last year,” Nader added in a follow-up tweet. Of course, his stance didn't sit well with Tesla fans.

  • Why this CIO is bullish on two of the most unloved stocks: Boeing and GE
    Business
    Yahoo Finance

    Why this CIO is bullish on two of the most unloved stocks: Boeing and GE

    Meanwhile, the coronavirus outbreak has similarly left markets largely unscathed as stocks continue to hover near their all-time highs. Kramer Capital Research CIO Hilary Kramer considers these events, among others, to be 'non-issues' in a market intent on continuing its climb. Kramer joined The Final Round on Thursday to discuss what risks, if any, could send markets down, and why Boeing (BA) and General Electric (GE) are among her top stock picks.

  • Business
    Barrons.com

    The Stock Market Finally Finds a Reason to Fall. What Comes Next?

    Look no further than the yield on the 10-year Treasury note, which fell to 1.68% this past week, its lowest level since October. Alas, if the recent range-challenging price action is any indication, the forward looking prospects will be much more reliant on coronavirus than anything revealed about the final quarter of 2019,” writes BMO Capital Markets' Ian Lyngen. That is a big change from the week before, when low yields were a sign that inflation was low and the Federal Reserve was on hold.

  • Life science companies make first moves to attack deadly coronavirus
    World
    American City Business Journals

    Life science companies make first moves to attack deadly coronavirus

    Bay Area biotech companies are among those taking the first steps toward developing treatments or vaccines for the deadly Wuhan coronavirus that has killed at lest 25 of the more than 800 people infected. Gilead Sciences Inc, indicated Thursday that it is considering restarting work on its drug remdesivir, which the Foster City-based company (NASDAQ: GILD), the Centers for Disease Control and Prevention and the U.S. Army Medical Research Institute of Infectious Diseases initiated five years ago as a potential Ebola treatment. The company is "in active discussions" with researchers and doctors in the United States and China regarding the respiratory system infection that is centered around the central China city of Wuhan but has been discovered in a patient in Washington state and another in Chicago, Bloomberg reported.

  • Brad Pitt: 'I'm old'
    News
    Associated Press Videos

    Brad Pitt: 'I'm old'

    As he's presented with the Maltin Modern Masters Award in Santa Barbara, Brad Pitt admits he may have forgotten the first rule of Fight Club, but feels blessed to have the life he's had. Jan.

  • Want to solve the retirement crisis? Invest $7,500 for every baby born in America
    Business
    MarketWatch

    Want to solve the retirement crisis? Invest $7,500 for every baby born in America

    This federal program, which doles out an average monthly benefit of about $1,500, was never meant to be the sole source of retirement income for older Americans. One recent proposal aims to change that. As part of his work with the Stanford Center on Longevity, Ric Edelman, chairman and co-founder of Edelman Financial Services, proposed a new vehicle to generate an additional source of retirement income.

  • Stock Market Dives After CDC Confirms Second U.S. Case Of Deadly China Virus
    Business
    Investor's Business Daily

    Stock Market Dives After CDC Confirms Second U.S. Case Of Deadly China Virus

    Stocks turned red and headed sharply lower after the Centers for Disease Control and Prevention confirmed a second U.S. case of the China coronavirus, putting the Dow Jones Industrial Average on track for a 1.5% weekly loss. The S&P 500 tumbled 1.2%, the Nasdaq dived 1.1% and the Dow Jones industrials sank 0.9% in today's stock action. Small caps tracked by the Russell 2000 shed 1.9%.

  • Business
    Financial Times

    The next bust may not come soon, but it will hurt

    The rally across financial markets reflects a tailwind from central banks and evidence of a rebound in global economic activity. The important question now is whether bullish equity and credit market expectations have outrun economic reality. Investors have time on their side, but the absence of a bounceback in growth strong enough to lift corporate earnings threatens to undermine asset price performance over the course of this year.

  • Business
    Barrons.com

    Mario Gabelli Says It’s Time to Invest in Stocks That Will Save the World. These Two Stocks Fit the Bill.

    With all these politicians running for office and gathering money and spending it, this is going to be a tsunami year for TV broadcasters. Mario Gabelli Gabelli: The next one is Fox [FOX], at $36 per share [Fox and Barron's parent company, (NWSA) have common ownership]. They sold their entertainment assets to (DIS) [DIS] since we talked about them last year.

  • Business
    Barrons.com

    Oil Tumbled This Week. It’s Time to Buy Energy Stocks Like BP.

    Just when it looked as if oil prices were ready to shoot higher, the waning threat of war and the arrival of the coronavirus has caused them to have their worst start to a year since 2016. That makes it a good time to consider buying energy stocks. Oil began 2020 with a quick 7.5% gain as tensions between the U.S. and Iran ratcheted up, leading to concern that an all-out conflict would disrupt the oil supply.

  • Canopy Growth (CGC): Why The Beverage Debacle Is a Big Problem
    Business
    TipRanks

    Canopy Growth (CGC): Why The Beverage Debacle Is a Big Problem

    Beverage Debacle Canopy Growth shocked the market last week by admitting their cannabis-infused beverages were not ready to scale for the market. The news is surprising considering the company is already a month into the legalization of Cannabis 2.0 products such as edibles and beverages. New CEO David Klein suggests the time period since Canopy Growth obtained Health Canada license in late November 2019 wasn't enough time to work out the kinks with THC in a brand new beverage facility.

  • Inovio’s stock soars after receiving grant to develop coronavirus vaccine
    Business
    MarketWatch

    Inovio’s stock soars after receiving grant to develop coronavirus vaccine

    As the coronavirus out of China spreads and gets deadlier, shares of health care companies that announce plans to take part in finding a vaccine, or identifying patients with the new strain, have rallied sharply in very active trading. On Thursday, among the bigger coronavirus gainers was Inovio Pharmaceuticals Inc.'s stock (INO) , which ran up 12% to the highest close since May 9. The Pennsylvania-based biotechnology company said early Thursday that it was awarded a grant of up to $9 million by the Coalition for Epidemic Preparedness Innovations (CEPI) to develop a vaccine for the new strain of coronavirus, 2019-nCoV, which originated in Wuhan, China, and has killed no less than 17 people.

  • Head of U.S.’ largest bank says central banks are fueling a sovereign debt bubble, negative-rates won’t ‘end well’
    Business
    MarketWatch

    Head of U.S.’ largest bank says central banks are fueling a sovereign debt bubble, negative-rates won’t ‘end well’

    Jamie Dimon doesn't have much positive to say about negative interest rates in Europe and Japan or public policy in the United States during the past decade. The JPMorgan Chase & Co. (JPM) Chairman and CEO blasted the policy of negative interest rates adopted in Europe and Japan during an interview Wednesday with CNBC, while arguing that economic growth in the U.S. could have been nearly double its actual rate if the government policy had been better. Dimon took aim at fiscal and other economic policies in place at the U.S. federal level.

  • Store closings pile up: With 1,200 closures already announced, retailers face another grim year
    Business
    USA TODAY

    Store closings pile up: With 1,200 closures already announced, retailers face another grim year

    National chains Macy's, J.C. Penney, Papyrus, Express and Pier 1 Imports, as well as other retailers, have collectively announced 1,218 store closures this year, according to global marketing research firm Coresight Research. The fallout comes after a year in which retailers closed more than 9,200 stores, according to Coresight. Those included the liquidation of Payless ShoeSource, Fred's, Gymboree and Charlotte Russe and mass closures by Family Dollar, Forever 21, Charming Charlie, Sears, Kmart, A.C. Moore and GameStop.

  • U.S. bank regulator sharpens teeth on Wells Fargo, surprising critics
    Business
    Reuters

    U.S. bank regulator sharpens teeth on Wells Fargo, surprising critics

    Long accused of being too soft, a U.S. bank regulator has surprised its critics with tough treatment of scandal-ridden lender Wells Fargo , culminating on Thursday in more than $58 million (44 million pounds) in fines against eight former executives at the bank. Consumer groups had worried that the Trump administration's pick to lead the Office of the Comptroller of the Currency (OCC), Joseph Otting, would do little to change its reputation for leniency. A former chief executive of California's OneWest Bank, Otting as comptroller has referred to lenders as his "customers" and pursued rule changes pushed for by bank lobbyists.

  • Business
    Barrons.com

    Deere, Chevron, and 30 Other Stock Picks From the Barron’s Roundtable

    Read More Roundtable Read the picks—and pans—from these panelists As always, the prolific Mario Gabelli, chairman and CEO of Gamco Investors, obliged with several picks—nine in all this year—related to media, defense, and what he dubs his “theme for the decade: saving planet Earth. Abby Joseph Cohen, advisory director and senior investment strategist at Goldman Sachs, proposed an eclectic group of stocks, both global and domestic, including Procter & Gamble and Chevron. Todd Ahlsten, chief investment officer of Parnassus Investments and lead portfolio manager of the Parnassus Core Equity fund, produced last year's strongest returns among the Roundtable panelists.

  • Apple Stock Hits Record High On Holiday-Quarter Expectations
    Business
    Investor's Business Daily

    Apple Stock Hits Record High On Holiday-Quarter Expectations

    Apple Stock Gets Price-Target Hikes Equity analysts have been raising their price targets on Apple stock to keep up with its recent run. On Friday, Cowen analyst Krish Sankar reiterated his outperform rating on Apple stock and raised his price target to 350 from 325. "The iPhone 11 product cycle is progressing well and the impending launch of the (lower-cost iPhone) SE2 and 5G phones later in the year could add further momentum to year-over-year unit growth trends," Sankar said in a note to clients.