VelocityShares Adds Libor ETNs To Lineup

The products offer long and short exposure to the composite forward Libor rate.

Today Janus Henderson is rolling out a pair of ETNs carrying the VelocityShares brand that offer long and short exposure to the composite forward Libor rate. The VelocityShares Long Libor ETNs (ULBR) and the VelocityShares Short Libor ETNs (DLBR) are both listed on the NYSE Arca and come with an expense ratio of 1.50%.

Although marketed under the VelocityShares brand, the ETNs are issued as senior unsecured debt obligations by Citigroup Global Markets Holdings.

“In today’s unique interest rate environment, many investors are looking for tools that can be used to manage interest rate risks, and we are very pleased to provide the first ETNs allowing them to do so with daily exposure to the composite forward Libor rate,” said Nick Cherney, Janus Henderson’s head of exchange-traded products.

Exposure Not So Straightforward

The exposure isn’t quite as simple as just reflecting the change in the Libor rate.

According to the filed documents, ULBR tracks an index that seeks to reflect the performance of the daily composite forward Libor rate, but “[it] does so by tracking the return on a hypothetical short position in Eurodollar futures contracts, where that position is recalibrated daily to result in a return over the next Index Business Day that approximates the percentage change in the composite forward Libor rate over that next day, subject to the long Libor floor. If the composite forward Libor rate is less than the long Libor floor of 1.00% on any Index Business Day, the Long Libor Index will aim to approximate only a portion of (referred to as the ‘targeted participation’ in) the percentage change in the composite forward Libor rate over the next day,” the pricing supplement for the ETNs said.

Meanwhile, DLBR’s index tracks, according to the supplement, “the return on a hypothetical long position in Eurodollar futures contracts, where that position is recalibrated daily to result in a return over the next Index Business Day that approximates the inverse of the percentage change in the composite forward Libor rate over that next day, subject to the short Libor floor. If the composite forward Libor rate is less than the short Libor floor of 2.50% on any Index Business Day, the Short Libor Index will aim to approximate only a portion of (referred to as the ‘targeted participation’ in) the inverse of the percentage change in the composite forward Libor rate over the next day.”

Libor, or the London interbank offered rate, is basically the average rate at which London’s banks are charged when they borrow from other banks. It’s a bit like the federal funds rate in the U.S.

ETF Filing: Bond Fund Will Have Low Beta Twist

A recent filing from Deutsche Asset Management outlines plans for an ETF that will target the international junk bond space, with a specific focus on securities exhibiting low beta. The Deutsche X-trackers Low Beta High Yield Bond ETF will track an index and is slated to list on the NYSE Arca.

One could argue that the fund has contradictory goals. Beta is basically a measure of a bond’s volatility, and generally, a low-yield bond also exhibits low beta, the prospectus notes. So basically, the index is seeking the lowest-yielding securities in the high-yield space.

Sector-Based Methodology

The methodology starts from a sector-based perspective, in that to be eligible for inclusion, a security must have a yield below its sector’s median yield. Potential components must also be corporate debt securities denominated in U.S. dollars, rated as below investment grade and issued by companies in developed markets.

They also must have at least a year left to maturity and have had an original maturity at issuance of no more than 15 years. Each security’s issuer must have at least $1 billion in outstanding face value, and each security must have at least $400 million in outstanding face value of its own, the prospectus said.

In February of this year, IndexIQ rolled out the IQ S&P High Yield Low Volatility Bond ETF (HYLV), which already has $96 million in assets under management.

The filing does not include a ticker or expense ratio.

Contact Heather Bell at [email protected]