Your Guide to Floating Rate ETFs
Consider these best floating rate bond ETFs for your portfolio
Like a loan or a savings account, the interest rate for some kinds of bonds can change over time. These are known as floating-rate bonds or floating-rate notes. These bonds use a variable rate that's determined by a reference rate, like the LIBOR, and a spread. The combination of these components is the total yield, which will float (fluctuate) over time.
There are also floating-rate bond ETFs, which are debt funds that hold these floating-rate bonds or seek to replicate floating-rate bond benchmarks. If you trying to minimize interest rate risk, these types of ETFs may be a good fit for your portfolio. Below, you'll find some example ETFs to jump-start your research.
This ETF from iShares tracks an index composed of U.S. dollar-denominated, investment-grade, floating-rate bonds with remaining maturities between one month and five years. The combination of assets gives investors exposure to both U.S. floating-rate bonds, as well as more than 300 shorter-term, investment-grade bonds. The ETF's expense ratio is 0.20%, and its one-year total return, as of April 30, 2020, was 0.70%.
This float-rate ETF is an SPDR that tracks the Barclays U.S. Dollar Floating Rate Note < 5 Years Index. As for the index, it consists of debt instruments that pay a variable coupon rate, a majority of which are based on the 3-month LIBOR, with a fixed spread. The index may also include U.S.-registered, dollar-denominated bonds of non-U.S. corporations, governments, and supranational entities. The ETF has an expense ratio of 0.15%, and its one-year total return, as of April 30, 2020, was -0.39%.
This floating-rate fund from VanEck tracks the MVIS U.S. Investment Grade Floating Rate Index (MVFLTR). The holdings in this ETF are mostly corporate bonds. More than 58% of the fund's holdings were issued in the U.S., but more than a dozen countries are represented by the ETF. The fund's net expense ratio is 0.14%, and its one-year total return, as of April 30, 2020, was 0.26%.
This fund from Eaton Vance looks to provide broad exposure to the floating-rate loan market. It invests in senior loans to corporations, institutional partners, and other business entities. The low durations may help reduce interest-rate risk and lower portfolio volatility. The net expense ratio is 2.68%, and its one-year total return, as of March 31, 2020, was -16.59%.
The second SPDR on this list seeks to outperform the Markit iBoxx USD Liquid Leveraged Loan Index. That benchmark includes roughly 100 tradable, leveraged loans that are determined to be the most liquid. Like EFR, this fund invests heavily in senior loans to major corporations and institutional entities. At least 80% of the ETF's funds are held in senior loans. The gross expense ratio is 0.70%, and its one-year total return, as of April 30, 2020, was -5.64%.
The last fund on the list, this one from Invesco, is another senior loan ETF. BKLN tracks the S&P/LSTA U.S. Leveraged Loan 100 Index, which is designed to track the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads, and interest payments. The net expense ratio for this fund is 0.65%, and its one-year total return, as of April 30, 2020, was -4.56%.
The Bottom Line
When considering an ETF, look under the hood and see what's in it. Take a look at its performance history, and see how it reacted to different market conditions. If you have any questions or concerns, be sure to consult a financial professional, such as a financial advisor or your broker.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
Treasury Direct. "Floating Rate Notes (FRNs): Rates & Terms." Accessed Jan. 29, 2020.
iShares. "iShares Floating Rate Bond ETF." Accessed May 21, 2020.
State Street Global Advisors. "SPDR Bloomberg Barclays Investment Grade Floating Rate ETF." Accessed May 21, 2020.
VanEck. "VanEck Vectors Investment Grade Floating Rate ETF." Accessed May 21, 2020.
Eaton Vance. "Senior Floating-Rate Trust." Accessed May 21, 2020.
State Street Global Advisors. "SPDR Blackstone / GSO Senior Loan ETF." Accessed May 21, 2020.
Invesco. "BKLN – Invesco Senior Loan ETF." Accessed May 21, 2020.