iShares Rolls Out Floating Rate Note ETF

BlackRock's BLK iShares unit, the world's largest ETF manager, introduced its first floating rate note fund today, the iShares Floating Rate Note Fund FLOT. Floating rate bonds pay variable rates rather than featuring fixed coupons as most fixed income investments do. FLOT is benchmarked to the Barclays Capital US Floating Rate Note < 5 Years Index. There is some competition in the floating rate arena already. In April, Van Eck Global introduced the Market Vectors Investment Grade Floating Rate ETF FLTR. FLTR has an expense ratio of 0.19% and has accumulated $7.4 million in assets under management since its late-April debut. All of FLOT's holdings are denominated in U.S. dollars and issues from U.S. companies make up about half of the portfolio. Australia (11%), the U.K. (10%), France (7%), and the Netherlands (5%) also figure prominently in the new ETF, according to ETFdb.com. FLOT, which features an expense ratio of 0.2%, already has nearly $20 million in assets under management, according to the iShares Web site. “The value of floating rate bonds fluctuates much less in response to market interest rate movements than the value of fixed-rate bonds,” said Russ Koesterich, iShares Chief Investment Strategist at BlackRock. “They can be a key instrument to help fixed-income investors insulate their portfolio in a rising inflation environment. While we don't see this as a near term threat, we still believe that interest rates are likely to rise, arguably substantially, in 2012 and beyond.” With the introduction of FLOT, iShares now has 39 fixed-income ETFs on the market.