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Why Floating Rate Treasury Fund (USFR) is an Investor Favorite

Sanghamitra Saha
Southwest Gas (SWX) is a promising pick for investors, courtesy of these five factors.

WisdomTree Investments Inc. WETF, an exchange-traded fund and exchange-traded product sponsor and asset manager, recently announced that its ETF Bloomberg Floating Rate Treasury Fund USFR was crowned ETF of the Year at the 2019 Mutual Fund Industry & ETF Awards.

Inside Huge Asser Flow in the Past Year

"USFR was one of the fastest growing ETFs in 2018, growing from $1 million in assets to more than $2 billion in assets today. This strong growth has continued into 2019,” per WisdomTree Head of Fixed Income Strategy.

Investors should note that the fund attracted about $1.12 billion last year, of which $1 billion came in the second half. This year, the fund has already amassed more than $1.25 billion in assets. If we consider the past one-year timeframe (as of Apr 16, 2019), the fund has seen a sturdy inflow of $2.37 billion in assets. At the current level, the fund has an asset base of $2.43 billion in assets. Notably, the fund hit the market in early 2014.

Inside USFR

The treasury fund charges only 15 bps in fees and yields 1.87% annually. Average years to maturity is 1.44 and effective duration is 0.02 years, which enable the fund to have low default and low interest rate risks.

How Does it Fit in Your Portfolio?

The year 2018 was all about rising rate risks as the Fed enacted several rate hikes. This has probably raised the appeal for floating rate bonds. Since the coupons of these bonds are adjusted periodically, they are less sensitive to an increase in rates compared with traditional bonds.

As such, unlike fixed coupon bonds, these will not lose value when the rates go up. Hence, it protects investors from capital erosion in a rising rate environment (read: 5 ETFs to Play Rising Yields).

Though the Fed has taken a patient stance, the central bank’s stance is more data-dependent. Till now, investors’ interest in U.S. treasuries have been steady given the global growth slowdown, which can give safe asset U.S. treasuries a boost. In this regard, USFR deals with two kind of risks — rates as well as economic slowdown.

Peer Comparison

Having said that, we would like to note that other two big floating rate bond funds also gained solid assets in the past year, hinting at investors growing interest on this field.

A $10.6-billion fund iShares Floating Rate Bond ETF FLOT has also fetched about $1.96 billion in assets. The fund consists of corporate bond ETFs, not treasuries. Banking takes the major share with about 50% exposure. The fund yields about 2.68% annually.

The $4.12-billion fund SPDR Bloomberg Barclays Investment Grade Floating Rate ETF FLRN also attracted an asset base of $1.57 billion in the past one-year period (as of Apr 16, 2019). The fund yields 2.70% annually.

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WisdomTree Investments, Inc. (WETF) : Free Stock Analysis Report
 
iShares Floating Rate Bond ETF (FLOT): ETF Research Reports
 
WisdomTree Floating Rate Treasury Fund (USFR): ETF Research Reports
 
SPDR Bloomberg Barclays Investment Grade Floating Rate ETF (FLRN): ETF Research Reports
 
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