Daily ETF Watch: Floating Rate ETF Nears

January 30, 2014

WisdomTree filed updated paperwork detailing its proposed floating-rate Treasurys bond ETF that’s designed to mitigate interest-rate risks. The filing came on the very same day that both the Federal Reserve again tapered its quantitative-easing policies and the U.S. Department of Treasury conducted its first auction of the credits that will find their way into the WisdomTree fund.

The WisdomTree Bloomberg Floating Rate Treasury Fund (USFR), a fixed-income ETF that would serve up access to floating-rate Treasurys, is a direct response to investor demand for investment tools with which to mitigate the effects of higher rates ahead. Two other ETF sponsors, State Street Global Advisors and iShares, also have plans to offer so-called Treasury floaters.

The proposed WisdomTree ETF tracks the Bloomberg U.S. Treasury Floating Rate Bond Index, which measures the performance of floating rate public obligations of the U.S. Treasury, according to the regulatory filing.

Unlike fixed-rate U.S. Treasury bonds, floating rate notes’ floating interest rates may be higher or lower than the interest rates of fixed-rate bonds of comparable quality with similar maturities. The floating yield rates of the FRNs included in the index are initially expected to reset weekly.

The fund’s expense ratio is 0.15 percent, or $15 for every $10,000 invested.

Yesterday, the Fed’s policy arm decided to trim its quantitative easing by another $10 billion per month, meaning its monthly bond-buying commitment will drop to $65 billion a month.

The Fed decision, as noted, came on the same day that the Treasury Department sold $15 billion worth of two-year floaters. It was the first-ever such auction, according to media reports, and the amount was at the high end of estimates on the size of the sale.

 

Filings

  • PowerShares has filed regulatory paperwork to launch the PowerShares Variable Rate Preferred Portfolio, which tracks the Wells Fargo Hybrid & Preferred Securities Floating and Variable Rate Index, a market-capitalization-weighted index designed to track the performance of convertible or exchangeable, as well as nonconvertible, preferred securities issued by either U.S.-based or foreign issuers.

Preferred stockholders have priority over common stockholders in the payment of specified dividends. Variable- or floating-rate securities are securities that pay interest at rates that adjust whenever a specified benchmark interest rate, such as Libor or a T-Bill rate, changes.

The fund’s associated fees and tickers were not available in the filing.

 

 

 

 

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