The ASX will soon have another income-focused ETF available for investors to trade when VanEck launches its Vectors Australian Floating Rate ETF. The new ETF will be an Australian floating-rate note ETF which will trade under the ASX code “FLOT”. The new ETF will be the first Australian ETF to offer investors exposure to a diversified portfolio of Australian floating-rate notes (FRNs). The fund will have a management cost of 0.22% p.a. and distributions will be made quarterly.
Arian Neiron, Managing Director of VanEck Australia said, “We are delighted to shortly be offering a passive FRN option for Australian investors. FLOT is designed to be a potential solution for investors who are seeking a defensive source of income with a higher yield than cash investments in an easy-to-access and easily tradable ETF. The strategy may suit investors such as retirees and self-managed superannuation funds who wish to preserve their capital but diversify out of very low yielding term deposits. Concerns about rising interest rates have prompted many investors to consider moving out of longer-term bonds where duration risk, or the risk that bond prices will fall if interest rates rise, is greater,” Neiron said.
“In contrast, returns on FRN coupons are designed to rise with short-term interest rates, which will benefit investors, while their capital stays relatively intact. We expect to see strong demand for this ETF, which will give broad exposure to investment grade quality short-terms bonds for a very low management cost.”
VanEck is one of the largest providers of ETFs worldwide, managing approximately USD$43 billion in both active and passive portfolios. In Australia, VanEck currently manages 13 ETFs listed on the ASX.
The new ETF will track the Bloomberg AusBond Credit FRN 0+ Yr Index which includes around 200 Australian-issued FRNs from over 80 issuers and has a running yield (as at 31 May 2017) of 2.74%.