Lyxor Launches Fed Funds Rate ETF

Lyxor has launched an exchange traded fund (ETF) that provides exposure to the Federal Reserve Funds rate, the U.S. equivalent of the Libor benchmark, widening the scope of fixed income and money market instruments for European investors.

The Lyxor Fed Funds US Dollar Cash UCITS ETF (FEDF) listed on the Borsa Italiana today and lists in London on 10 July in both sterling and USD. It tracks the Solactive Fed Funds Effective Rate Total Return index, which  is composed of cash in USD, accruing interests on a daily basis.

The Fed funds rate is the rate of interest that depositary institutions lend funds to their counterparts, and that capital is lodged with the Federal Reserve, usually overnight. The Fed rate has not been raised since 2006.

Arnaud Llinas, head of Lyxor ETFs and indexing, said “Lyxor which is continuously expanding its fixed income range, now makes available a new solution for investor’s USD liquidity management needs, through an ETF.”

The headline annual fee, as outlined in the prospectus, varies between zero percent and 0.15 percent. It is zero percent at launch, and will fluctuate each month depending on the interest rate.

Llinas explained in a statement: "For short-term fixed income strategies (like our floating rate note ETF, as well as our money market ETFs, like our euro cash, our smart cash and now our Fed funds ETFs) we want to be able to offer to our clients a positive and meaningful remuneration on their investment even when the prevailing interest rates are very low like today. For that purpose, we are able to lower the fees below the maximum fee level provided in the prospectus, at a level which is consistent with this objective. We then have the possibility to reset this fee level on a monthly basis, as a function of the expected return for the coming month."

Earlier this week Lyxor was forced to suspend trading activity in its Greek equity ETF (GRE) due to Greece shutting down its stock exchange. So far this year the provider has launched several funds like a euro high yield bond fund in April and two broad equity ETFs that track U.S. and Pacific equities in June.