Daily ETF Watch: New Active Floater Fund

AdvisorShares is expanding its playbook with plans for a floating-rate ETF.

Reviewed by: Hung Tran
Edited by: Hung Tran

AdvisorShares is expanding its playbook with plans for a floating-rate ETF.

AdvisorShares has put into registration an active floating-rate ETF to give investors another tool to manage the risks to bond holdings created by the prospect of rising interest rates.

Floating-rate bond ETFs were very popular last year and continue to resonate with investors in 2014 as they brace for the day when the Federal Reserve begins pushing official short-term interest rates higher. For example, the iShares Floating Rate Bond ETF (FLOT | A-99) raked in more than $3.15 billion in net new assets in 2013, growing to become a $3.7 billion fund.

Floaters are generally designed to offer protection against price volatility caused by changes in interest rates. Unlike fixed-rate debt securities, prices on floating-rate securities are less sensitive to fluctuations in interest rates because the coupons of the bond adjust regularly, partially offsetting the impact of changes in interest rates. They are, as flows indicate, popular in a rising-rate environment.

AdvisorShares is hoping that its proposed AdvisorShares Pacific Asset Enhanced Floating Rate ETF (FLRT) can be as successful as FLOT. The fund, subadvised by Pacific Asset Management, will invest in a portfolio of income-producing floating-rate loans and floating-rate debt securities, according to the regulatory filing.

Associated fees for the proposed fund were not made available in the filing.


Another issuer, First Trust, has put into registration a short-dated bond fund, the First Trust Enhanced Short Maturity ETF, to also alleviate investors’ worries over higher rates.

Short-maturity bond funds have grown in popularity in the past year, as investors look to minimize their exposure to interest-rate risk in anticipation of the Fed’s tapering of quantitative easing. The longer-dated the debt is, the more sensitive its price is to interest-rate fluctuations.

The newly proposed fund will invest in asset-backed and mortgage-backed securities, floating-rate loans, and other ETFs that also invest in fixed-income securities, according to the regulatory paperwork. The maturity of the fund’s portfolio is expected to be below three years.

Associated fees and tickers were not made available in the filing.


Hung Tran is a former staff writer for etf.com.