iShares Floating Rate Bond ETF (BATS: FLOT)

iShares Floating Rate Bond ETF (BATS:FLOT), Trade Ideas

iShares Floating Rate Bond ETF

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The U.S. repo market is experiencing stress due to rising short-term interest rates, reminiscent of the 2019 funding crisis.

Repo Rates Spike: Are Lessons Of The 2019 Funding Crisis Being Heeded?

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Bill Gross earned his &#34;bond king&#34; moniker while at Pacific Investment Management, a firm where he managed the $270 billion Total Return Fund.

&#39;Bond King&#39; Bill Gross Nets Millions On Treasury Market Rebound

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The U.S. repo market has come under the spotlight in the past couple of days as surging short-term interest rates are causing some stress for overnight funding on Wall Street, reminiscent of the <a href="https://www.benzinga.com/markets/cryptocurrency/20/01/15122298/the-repo-market-is-so-broken-that-the-fed-wants-to-change-it">2019 funding crisis</a>.
A repo — or, to give its full name, a repurchase agreement — is an overnight trade in government securities where a dealer sells the securities to investors and buys them back the next day for a slightly higher price. Such trades are typically used to raise short-term capital — the dealer is effectively borrowing money overnight from investors, or lenders.
The repo market is an important facet of the short-term funding habits of banks, and stresses in the market started showing up last month following the surge in bond buying in November as increased demand for short-term repo lending led to a jump in rates.
While yields on longer-term Treasuries have continued to <a href="https://www.benzinga.com/news/23/11/36004201/november-rally-sets-treasury-bonds-on-track-for-best-month-in-40-years">fall from the 16-year highs</a> hit in October, at the shorter end maturities between 1 month and 1 year, yields remain above 5%. On the final trading day of November, yields on overnight general collateral repo jumped above 5.5% and have remained close to this high into December.
The iShares Floating Rate Bond ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FLOT#NYSE">FLOT</a>), an exchange traded fund that references overnight financing rates, was trading 0.1% higher at $50.65 in early trade on Tuesday.
Also Read: <a href="https://www.benzinga.com/news/23/11/36004201/november-rally-sets-treasury-bonds-on-track-for-best-month-in-40-years">November Rally Sets Treasury Bonds On Track For Best Month In 40 Years</a>
<h2 class="wp-block-heading">Market Like It&#8217;s 2019?</h2>
Some analysts said the repo market was showing early signs of the <a href="https://www.benzinga.com/markets/cryptocurrency/20/01/15122298/the-repo-market-is-so-broken-that-the-fed-wants-to-change-it">funding crisis of 2019</a>, with elevated rates and liquidity scarcity. On Sept. 17, 2019, interest rates on repos, as measured by the Secured Overnight Financing Rate increased from 2.43% to 5.25%, hitting a peak during the day of more than 10%.
Fearing that surging rates on unsecured loans between banks could lead to a full-blown financial crisis, the Federal Reserve Bank of New York injected $75 billion of extra liquidity into the repo markets, and continued liquidity injections for the remainder of the week.
The Federal Reserve linked the event to a drop in reserves due to the corporate tax date and increases in net Treasury issuance.
The latest spike, analysts believe, could be related to the Treasury pile that is mounting up as government borrowing increases at the same time as the Fed starts selling Treasuries as part of its monetary tightening efforts.
However, banks should be well armed against another potential threat to their existence. They&#8217;ve all passed Fed stress tests, with reserves estimated at a combined $3.4 trillion.
Now Read:<a href="https://www.benzinga.com/news/23/12/36051619/bond-king-bill-gross-nets-millions-on-treasury-market-rebound"> &#8216;Bond King&#8217; Bill Gross Nets Millions On Treasury Market Rebound</a>
Photo: Shutterstock

&#8220;Bond King&#8221; Bill Gross may have netted millions of dollars backing the <a href="https://www.benzinga.com/news/23/11/36004201/november-rally-sets-treasury-bonds-on-track-for-best-month-in-40-years">November rally in the U.S. Treasury market</a>.
Gross earned his &#8220;bond king&#8221; moniker while at Pacific Investment Management (PIMCO), a company he co-founded and where he managed the $270 billion Total Return Fund.
Now, as a private investor, Gross no longer controls the world&#8217;s biggest bond fund, but he still knows his way around the market. In October — while Treasury yields were at, or close to, 16-year highs — Gross predicted a turnaround in the market and placed his bets.
Also Read: <a href="https://www.benzinga.com/news/23/11/36004201/november-rally-sets-treasury-bonds-on-track-for-best-month-in-40-years">November Rally Sets Treasury Bonds On Track For Best Month In 40 Years</a>
<h2 class="wp-block-heading">Higher For Longer, No More</h2>
In October, Gross announced on X that he was buying Secured Overnight Financing Rate (SOFR) futures. He confirmed later, through a spokesman, that he&#8217;d purchased 3,000 SOFR three-month March 2025 contracts.
<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"> 
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<blockquote class="twitter-tweet" data-width="500" data-dnt="true">Maybe next week. Will tweet. On bonds. Invest in the curve. Various combinations 2/10, 2/5. Should go positive before year end. I'm buying SFR h5 (SOFR futures). "Higher for longer" is yesterday's mantra. 2/2
&mdash; Bill Gross (@real_bill_gross) <a href="https://twitter.com/real_bill_gross/status/1716472973727785008?ref_src=twsrc%5Etfw">October 23, 2023</a></blockquote>
<script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script></div>
</figure>
The position may have already netted him $4 million, according to a Bloomberg report.
This is a rather obscure area of the financial markets, and few without the many years of experience and knowledge as Gross would think of investing there.
But Gross was backing rising expectations that the Federal Reserve had finished its rate hike cycle and that bond yields would start to fall.
Referencing the Fed&#8217;s rhetoric throughout its period of interest rate increases, Gross said in his October 24 Tweet: &#8220;&#8216;Higher for longer&#8217; is yesterday's mantra.&#8221;
The iShares $ Floating Rate Bond UCITS ETF (BATS:<a class="ticker" href="https://www.benzinga.com/stock/FLOT#BATS">FLOT</a>), an exchange-traded fund that tracks securities that reference the SOFR, gained 0.4% during November.
The day before he announced it on X, the yield on the 10-year Treasury peaked at 5.02%. It was the highest level since 2007. It has since fallen back to 4.2% pushing the price of the bond higher.
The Fed had already held its main rate steady at its September meeting at 5.25%-5.5% having last raised it at the July meeting. Gross was betting on the July move being the last. Indeed, the Fed held again at its November meeting and is now widely expected to begin cutting in the first quarter of 2024.
Now Read: <a href="https://www.benzinga.com/news/23/11/35856564/foreign-buyers-desert-us-treasury-bond-market-as-supply-increases">Foreign Buyers Desert US Treasury Bond Market As Supply Increases</a>

'Bond King' Bill Gross Nets Millions On Treasury Market Rebound

Although interest rates in many developed markets remain low, and in some cases negative, investors continue to look for somewhere to stash their cash, regardless of anemic interest rates. Resultantly, bond funds continue to thrive. One overlooked bond investment option some individuals might want to consider is floating rate securities. These securities offer periodically resetting interest payments, with rates tied to a representative interest rate index, <a href="http://www.investinginbonds.com/learnmore.asp?catid=9&amp;subcatid=52&amp;id=275">according to InvestingInBonds</a>.
Floaters, as these securities are often called, offer another benefit. They often have short durations, which significantly reduces exposure to the risk of rising interest rates. Interest paid on floaters is not compounded, but many do pay make monthly payouts, helping boost the allure of these products for income investors.
Related Link: <a href="https://www.benzinga.com/analyst-ratings/analyst-color/17/02/9103045/corporate-bond-etfs-remain-popular">Corporate Bond ETFs Remain Popular</a>
<h3>ETFs And Floaters</h3>
There are several exchange-traded funds devoted to floating rate notes, including the iShares Floating Rate Bond ETF (NYSE: <a class="ticker" href="/stock/flot#NYSE">FLOT</a>). The $4.7 billion FLOT tracks the Bloomberg Barclays US Floating Rate Note &lt; 5 Years Index and is <a href="http://cfraresearch.com/">CFRA Research&#39;s</a> focus ETF for the month of March.
<h3>Fleshing Out The FLOT Profile</h3>
&ldquo;Overall, FLOT ranks among the top 25 percent of the fixed income ETF universe followed by CFRA. While there are fewer fixed income ETFs than equity ones available, investors have been shifting an increasing amount of their assets into low-cost bond products. Among the benefits of fixed income ETFs that seek to track a benchmark are that they can help to provide liquidity and transparency to investors at a modest expense. We have research on 129 fixed income ETFs with a gross expense ratio of 0.25 percent or lower, including FLOT (0.20 percent),&rdquo; said CFRA in a note out Wednesday.
FLOT&#39;s low effective duration makes it an ideal pick for investors concerned about the erosive effect rising interest rates have on bonds and some fixed income ETFs.
At the end of January, FLOT offered a 30-day SEC yield of 1.1 percent. While this is relatively low for a bond ETF, we think FLOT has strong credit quality and an extremely low duration. FLOT has 40 percent of its assets in bonds rated A or equivalent, 23 percent in bonds rated AA and 15 percent in bonds rated AAA; most of the remainder of its holdings is in bonds for which we do not have ratings information. This high credit quality is coupled with very low duration of just 0.13 years, meaning that a 100 basis point rise in rates would hurt the ETF&#39;s price by just 13 basis points,&rdquo; said CFRA.
The research firm has an Overweight rating on FLOT, the highest rating it applies to ETFs.

Here is the ETF Professor's ETF Watch List for Thursday, April 25, 2013.

Give the Market Vectors Pharmaceutical ETF (NYSE: <a class="ticker" href="/stock/pph#NYSE">PPH</a>) a look.

The Market Vectors Gold Miners ETF (NYSE: <a class="ticker" href="/stock/gdx#NYSE">GDX</a>) is an obvious one to watch, again.

Another big day ahead for the Energy Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xle#NYSE">XLE</a>).

Give the First Trust Dow Jones Internet Index Fund (NYSE: <a class="ticker" href="/stock/fdn#NYSE">FDN</a>) a look.

Emerging markets plays of the day: iShares MSCI China Index Fund (NYSE: <a class="ticker" href="/stock/mchi#NYSE">MCHI</a>), iShares MSCI Taiwan Index Fund (NYSE: <a class="ticker" href="/stock/ewt#NYSE">EWT</a>) and the WisdomTree India Earnings ETF (NYSE: <a class="ticker" href="/stock/epi#NYSE">EPI</a>).

Forex play of the day: CurrencyShares Australian Dollar Trust (NYSE: <a class="ticker" href="/stock/fxa#NYSE">FXA</a>).

Bond play of the day: iShares Floating Rate Note (NYSE: <a class="ticker" href="/stock/flot#NYSE">FLOT</a>).

Sector ETFs

Broad U.S. Equity ETFs

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First Trust Dow Jones Internet Index Fund

Market Vectors ETF Trust Market Vectors Gold Miners

MCHI

Merrill Lynch Pharmaceutical HOLDRs Trust

ETFs to Watch April 25, 2013 (FLOT, GDX, XLE)

On a day when U.S. equities are soaring, bonds may not be the first thing on many investors' minds. Even with that in mind, it is worth noting that some newer bond ETFs have rapidly accumulated assets under management, even as stocks have soared.

	Typically, a "new" ETF is <a href="http://www.benzinga.com/markets/bonds/13/04/3493707/nifty-junk-bond-etfs-your-broker-forgot-to-mention">a year old or less</a>, but in a new research note, S&amp;P Capital IQ looks at a broad swath of successful bond ETFs that have come to market over the past three years.

	"Indeed, 41 of the 181 fixed income ETFs for which we have such data have over $1 billion in assets, helped by the strong demand in 2012 for income-generating ideas," said S&amp;P Capital IQ in the note. "In 2012 alone, fixed income ETFs received approximately $53 billion in new money and these products now have nearly $250 billion in assets."

	The research firm notes that there are seven bond ETFs that debuted over the past three years that currently have at least $1 billion in AUM. S&amp;P sees that resulting from three factors: Who is the asset manager and index provider behind the product? The ETF's costs and does the ETF help to fill a need for investors better than alternatives?

	The PIMCO Total Return ETF (NYSE: <a class="ticker" href="/stock/bond#NYSE">BOND</a>) stands as an obvious example of newer bond ETF that delivers on at least two of those factors for investors. BOND has the advantage of being known as the "Bill Gross ETF" or the ETF equivalent of the massive PIMCO Total Return Fund, the world's largest mutual fund.

	Not even 14 months old, BOND has accumulated more than $5 billion in AUM and its expense ratio of <a href="http://www.pimcoetfs.com/Funds/Pages/BOND.aspx">0.55 percent is fair among actively managed ETFs</a>. Many analysts and members of the press have doted over BOND, anointing it as the savior of the actively managed ETF space. To be sure, BOND has delivered the goods in terms of AUM, returns and low-cost access to Bill Gross.

	However, all the fawning over bond obfuscates the fact that there are <a href="http://www.benzinga.com/markets/bonds/13/04/3493925/three-actively-managed-etfs-to-consider-right-now">some other noteworthy actively managed ETFs on the market today</a>.

	Chief among them is the WisdomTree Emerging Markets Local Debt Fund (NYSE: <a class="ticker" href="/stock/eld#NYSE">ELD</a>), which was also highlighted in the S&amp;P note. Something that folks often forget about the WisdomTree Emerging Markets Local Debt Fund is that this was the first actively managed ETF to surpass $1 billion in AUM. Today, ELD has over $1.9 billion in assets. With an expense ratio of 0.55 percent and an effective duration of 4.83 years, ELD has gained prominence as investors have looked for ways to get exposure to <a href="http://www.benzinga.com/markets/bonds/13/04/3479116/fundamentals-could-lift-this-em-bond-etf">strong government balance sheets in the emerging world</a>.

	ELD's country weights include Brazil, Chile, Colombia, Mexico, Peru, Poland, Turkey, South Africa, Russia, Malaysia, Indonesia, Philippines, Thailand, China and South Korea.

	Flying under the radar is the FlexShares iBoxx 3-Year Target Duration TIPS Index Fund (NYSE: <a class="ticker" href="/stock/tdtt#NYSE">TDTT</a>), which charges just 0.2 percent per year. TDTT debuted in September 2011 and has already hauled in over $1.5 billion in assets. TDTT "gives investors access to the inflation-hedging qualities of TIPS and seeks to provide targeted duration exposure through changing interest rate and economic cycles," <a href="http://www.flexshares.com/exchange-traded-funds/iboxx-3-year-target-duration-us-tips-index">according to FlexShares</a>.

	Another ETF that S&amp;P mentioned that also debuted in 2011 is the iShares Floating Rate Note Fund (NYSE: <a class="ticker" href="/stock/flot#NYSE">FLOT</a>). FLOT also charges 0.2 percent and has also amassed over $1.5 billion in assets.

	Investors looking for shorter duration high-yield corporate bonds <a href="http://www.benzinga.com/markets/bonds/13/04/3501729/three-bond-etfs-with-sub-five-year-durations">have at least two options</a> that S&amp;P mentioned. The PIMCO 0-5 Year High Yield Corporate Bond Index (NYSE: <a class="ticker" href="/stock/hys#NYSE">HYS</a>), which will turn two in June, has a juicy distribution yield of 4.87 percent and an effective duration of 1.85 years. HYS charges 0.55 percent and has more than $1.9 billion in assets.

	HYS has a rival in the form of the SPDR Barclays Short Term High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/sjnk#NYSE">SJNK</a>). Barely more than a year old, SJNK dispels the notion that investors have been pulling money out of high-yield bonds as the ETF has hauled in $1.2 billion in assets. SJNK has a modified adjusted duration of 2.06 years and fees of 0.4 percent.

	S&amp;P also noted the PowerShares Senior Loan Portfolio (NYSE: <a class="ticker" href="/stock/bkln#NYSE">BKLN</a>), which debuted in March 2011 as the first senior loan ETF. BKLN's success has triggered the introduction of at least two copycat ETFs. With a distribution yield of 4.56 percent, BKLN's yield to maturity of 5.58 percent. The ETF is the top asset-gatherer in the PowerShares lineup this year, having pulled in $1.88 billion in new cash, <a href="http://www.invescopowershares.com/flows/">according to issuer data</a>. BKLN now has over $3.4 billion in assets.

	For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

Intraday Update

BKLN

BOND

SJNK

TDTT

Some Newer Bond ETFs Flourish

As global equity markets remain volatile, investors continue to look for somewhere to stash their cash, regardless of anemic interest rates. Resultantly, bond funds continue to thrive. One overlooked bond investment option some individuals might want to consider is floating rate securities. These securities offer periodically resetting interest payments, with rates tied to a representative interest rate index, <a href="http://www.investinginbonds.com/learnmore.asp?catid=9&amp;subcatid=52&amp;id=275">according to InvestingInBonds</a>.

Floaters, as these securities are often called, offer another benefit. They often have short durations, which significantly reduces exposure to the risk of rising interest rates. Interest paid on floaters is not compounded, but many do pay make monthly payouts, helping boost the allure of these products for income investors. 

Of course, investors can access floaters via ETFs. Not surprisingly, given that floaters do not get much attention in the bond world, floating rate bond ETFs do not get much press among bond funds. Here are three your broker probably forgot to tell you about.

iShares Floating Rate Note Fund (NYSE: <a class="ticker" href="/stock/flot#NYSE">FLOT</a>)
By far the largest of the floating rate bond ETFs, the iShares Floating Rate Note Fund has amassed $239 million in assets under management (AUM) since its June 2011 debut. FLOT stands out as valid option for investors craving a low duration bond fund. It has an effective duration of just 0.14 years <a href="http://us.ishares.com/product_info/fund/overview/FLOT.htm">according to iShares data</a>. 

Home to 215 holdings, FLOT features a 30-day SEC yield of 1.12 percent and a favorable expense ratio of 0.2 percent. More than 75 percent of FLOT's holdings hail from the banking and industrial sectors while another 11.5 percent of the fund's weight is allocated to agency bonds.

Market Vectors Investment Grade Floating Rate ETF (NYSE: <a class="ticker" href="/stock/fltr#NYSE">FLTR</a>)
The Market Vectors Investment Grade Floating Rate ETF is the oldest of the floating bond ETF trio, having debuted in April 2011. Although FLTR is far smaller than its iShares rival with just $7.3 million in AUM, FLTR is also slightly less expensive with annual fees of 0.19 percent. 

In addition, FLTR is smaller by number of holdings with 21 and this ETF features an average modified duration of almost 2.7 years. Year-to-date, FLTR has gained 4.3 percent compared to a 2.4 percent jump for FLOT. On the Standard &amp; Poor's rating scale, almost 96 percent of FLTR's holdings are rated investment grade. The ETF has a 30-day SEC yield of 1.13 percent.

SPDR Barclays Capital Investment Grade Floating Rate ETF (NYSE: <a class="ticker" href="/stock/flrn#NYSE">FLRN</a>)
The SPDR Barclays Capital Investment Grade Floating Rate ETF is the newest member of the floating rate ETF group, having debuted in November 2011. It is also the least expensive fund in the trio with an annual expense ratio of just 0.15 percent. With 102 holdings, FLRN has a modified adjusted duration of just 0.13 years. FLRN has $9.1 million in AUM and a 30-day SEC yield of 1.16 percent.

For more on obscure bond ETFs, click <a href="http://www.benzinga.com/markets/bonds/12/07/2759979/3-more-high-yield-bond-etfs-your-broker-forgot-to-mention">here</a>.

Dividends

FLRN

Market Vectors Investment Grade Floating Rate ETF

FLTR

Floating Rate Bond ETFs Your Broker Forgot to Mention

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iShares Floating Rate Bond ETF declares monthly distribution of $0.2413

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iShares Floating Rate Bond ETF declares monthly distribution of $0.2559

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