Daily ETF Watch: Active Floating Rate Fund

First Trust filed recently for a multistrategy actively managed floating-rate ETF that will invest in a wide range of types of investment-grade floating-rate debt.

There are currently at least seven floating-rate-debt ETFs trading on the U.S. market, the first and largest of which is the PowerShares Senior Loan ETF (BKLN | B), which rolled out in March 2011 and now has $5.6 billion in assets under management.

But BKLN targets high-yield corporate debt; in the broad investment-grade U.S. space, the heavy hitter is the iShares Floating Rate Bond ETF (FLOT | 77), which has $3.37 billion in AUM. In terms of actively managed floating-rate-debt funds, the only one currently trading is the SPDR Blackstone/GSO Senior Loan ETF (SRLN | B), which covers global corporate high-yield debt and has $560 million in AUM.

The First Trust Strategic Floating Rate ETF (FTFR) stands apart from the others because of its combination of active management with a broad, global focus on investment-grade floating-rate debt. According to the prospectus, its portfolio will include floating-rate debt issued by corporations and the U.S. government, non-U.S. entities, and agencies.

It will also include privately issued securities, asset-backed securities, mortgage-backed securities, floating-rate loans and investment companies investing in floating-rate debt securities.

The proposed ETF also has a fairly complex investment approach, involving multiple managers and buckets, and a variety of constraints on its allocations. The fund will have an investment committee that will determine its allocations to different strategies and the in-house managers that run them.

Those strategies include loans and high-yield bonds (limited to 35 percent of the portfolio); investment-grade debt; mortgage-related investments and asset-backed securities; and additional instruments. The “additional instruments” category covers a wide range of debt types, including illiquid assets; although the additional instruments investments are limited to 20 percent of the fund’s net assets, 15 percent of the fund’s net assets can be invested in illiquid assets.

The prospectus noted that at least 65 percent of the portfolio at all times will be invested in investment-grade debt, and that asset-backed securities and nonagency mortgage-backed securities are limited to a combined total weight in the portfolio of 20 percent.

FTFR will list on the Nasdaq stock market; the filing did not provide an expense ratio.