iShares Floating Rate Note ETF
Floating-rate notes make an excellent alternative to traditional fixed income because they contain an adjustable coupon feature that resets every 90 days, according to an interest-rate index such as Libor. This makes them less susceptible to interest-rate volatility.
The iShares Floating Rate Note ETF (FLOT) holds investment-grade floating-rate notes primarily of financial and industrial sector companies. This ETF has been very stable despite the volatile interest-rate environment this year because of the very short duration of its portfolio. FLOT represents notes with the highest credit quality, which is why the yield is only 0.45%; however, the price of this ETF should remain stable even if interest rates move higher.
Floating-rate notes have been well-publicized as an alternative safe haven to longer-duration bonds in the event that the Federal Reserve starts to tighten its monetary policy. This ETF might be a temporary hiding spot for a portion of your portfolio in the event that we see additional volatility in credit this year.
David Fabian is Managing Partner and Chief Operations Officer of Fabian Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Learn More: 3 Tenets of Sound Risk Management