Daily ETF Watch: New Floating Rate Fund

AdvisorShares launches an actively managed floating-rate ETF.

Reviewed by: Heather Bell
Edited by: Heather Bell


AdvisorShares today is rolling out an actively managed floating-rate debt ETF that will seek to maximize yield while targeting highly liquid loans and debt securities. Floating-rate debt ETFs have seen a surge in popularity as they offer some protection against rising interest rates.  


The fund, sub-dvised by Pacific Asset Management, will mainly invest in non-investment-grade floating-rate issues, including senior loans and debt issued by both U.S. and foreign entities, according to its prospectus. A fact sheet provided by AdvisorShares indicates that the subadvisor will use a three-tiered investment process that includes screening for loans of at least $1 billion and performing a fundamental analysis of each of the 60 to 100 loan in the portfolio, according to a fact sheet from AdvisorShares.


The AdvisorShares Pacific Asset Enhanced Floating Rate ETF (FLRT) brings the number of floating-rate debt ETFs to an even dozen. With its focus on high-yield debt, FLRT’s two main competitors will be the passively managed PowerShares Senior Loan Portfolio (BKLN | B), which has accumulated a hefty $5.7 billion in assets, and the actively managed SPDR Blackstone/GSO Senior Loan ETF (SRLN | B), with $574 million in assets.


However, with a net expense ratio of 1.10 percent, FLRT would appear to have a bit of an uphill battle. The well-established BKLN and SRLN charge 65 and 70 basis points a year, respectively. Investors will likely want to see the fund demonstrate a capacity to achieve its goal of high current income before they put their money into the expensive newcomer.


SIT Rising Rate Fund
Another fund created to respond to the looming threat of rising rate is also set to launch on the NYSE Arca today. The SIT Rising Rate ETF (RISE) invests in futures and options on two-, five- and 10-year U.S. Treasury instruments. According to its prospectus, RISE’s holdings are “weighted to achieve a targeted negative 10 year average effective portfolio duration.”


The fund, managed by ETF Managers Capital LLC, is the first of its kind. Its annual management fees are capped at 1.50 percent through Feb. 1, 2016, the prospectus said.


Legg Mason Hires Vanguard ETF Team
Legg Mason, the storied mutual fund company that was home to star equities manager Bill Miller, has made a definitive move towards finally launching its own ETFs by hiring major-league talent from Vanguard.  The move suggests the firm is finally serious about launching its own ETFs.


The new members of the Legg Mason ETF crew are Rick Genoni, who was at the head of the index and product management team at Vanguard, and Brandon Clark, the former head of the Vanguard ETF Capital Markets Group, the press release said. It also noted the pair’s extensive experience in the area of ETFs including product development, working with regulators and educating clients.   


ETF.com’s Chief Investment Officer Dave Nadig called the move “a recognition from the old guard that you need experience to run a solid ETF program.”  


“You can't learn it all in a book,” Nadig continued. He noted that Genoni was one of the best “product guys” in the market and that Clark would be able to help Legg Mason build up a strong capital markets presence, which is important for a successful product launch that draws in institutional and high net worth investors.

Such a concerted move has been a long-time coming.


Mutual Fund Wire noted in 2009 that the firm was considering launching its own family of actively managed ETFs, and since then it has filed for exemptive relief for actively and passively managed ETFs and put a MINT clone into registration.


However, it has not yet launched an ETF of its own.

Heather Bell is a former managing editor of etf.com. She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.