FLOT: Simple Quality Floating Rate Bond, One Step Above T-Bills On Risk-Return
High-quality floating rate bonds have broadly similar characteristics to t-bills, with slightly higher yield, risk and volatility. FLOT is a simple index ETF investing in these securities, with a 4.0% SEC yield. Income could grow if the Fed hikes rates later in the year, a distinct possibility.
FLOT: Still A Safe Harbour
I rate the iShares Floating Rate Bond ETF (FLOT) as a HOLD, favoring its high credit quality, low risk, and yield premium over T-bills for short-term cash parking. FLOT's assets are, in the main, FRNs issued by AAA Supranationals, or AA and A-rated commercial banks. The chances of credit losses are remote. FLOT's returns have outpaced CPI and will likely continue to do so. Its assets' credit spread are a buffer when rates rise, and a source of outperformance when rates fall.
FLOT: One Of My Favourite Low Duration Instruments
I am bullish on the iShares Floating Rate Bond ETF due to its attractive risk/reward profile in the current rate environment. FLOT offers low duration exposure, mitigating interest rate risk while providing competitive yields compared to liquid cash products and similar short-duration bond ETFs. The ETF's portfolio composition and floating rate structure position it well for regular income with minimal volatility.
FLOT: Why We Sometimes Need Boring Income
FLOT: Why We Sometimes Need Boring Income
FLOT: No Duration, But Still A Dollar Bet
FLOT offers zero-duration, low credit risk exposure, making it a defensive choice when rate and duration risks are elevated. However, it is USD denominated which is an enhanced consideration currently. Current geopolitical tensions, especially around Iran and the Strait of Hormuz, could support the US dollar if the US demonstrates commitment to the maritime order countering perceived isolationism. Rising oil prices from the conflict are likely to delay rate cuts, supporting USD yields and nominally increasing the attractiveness of the USD, reducing the USD risk.
ETFs to Make the Most of the Long-Term Yield Surge to 5%
A rise in yields is likely to benefit a few corners of the market. Investors seeking to capitalize on the opportune moment should consider these ETFs.
FLOT: Floating Through Volatile Markets
FLOT offers a conservative risk/reward profile with a 4.77% 30-day SEC yield and investment-grade exposure. Its short duration of 0.02 years and exposure to highly liquid, investment-grade corporate bonds make it a better risk management tool than T-Bills. The ETF benefits from rising interest rates, with significant exposure to multilateral development banks, reducing credit risk and enhancing liquidity.
ETFs Set to Benefit From Rising Yields
A rise in Treasury yields is likely to benefit a few corners of the stock and bond market.
FLOT: The Party Is Over (Rating Downgrade)
FLOT's floating rate bonds excel in rising interest rate environments but underperform in easing conditions, prompting a shift from 'Buy' to 'Hold'. The ETF's higher default risk and tight credit spreads make it less appealing compared to short-term bond funds like TBUX. FLOT offers a low 30-day SEC yield of 5.15%, with minimal spread over treasuries and short-term bond funds, reducing its attractiveness.
Weather Rate Volatility With FLOT
iShares Floating Rate Bond ETF is nice to avoid duration risk while benefiting from higher short-term yields amid volatile interest rates. Inflation declines are helped by lower oil prices, and sustained rate cuts are less likely in our view due to ongoing price increases by companies. We think the main chance for victory in the inflation battle is if the slightly lower oil and gas prices shift expectations, which are a persistent anchor above target rates.
FLOT: A Safe Harbour
The iShares Floating Rate Bond ETF is a low Beta, high quality, liquid ETF suitable for most short-term investors. It is designed to preserve wealth, not build it. The high-quality FRNs that FLOT invests in earn a premium yield to T-Bills, despite the fact that they are of similar credit quality. FLOT should continue to outperform money market instruments because the spreads it is locking in today will likely exceed the spreads on offer in a few years' time.
FLOT: Benign Credit Markets Suggest Investors Should Stay Invested
The FLOT ETF provides exposure to floating rate investment-grade bonds. The FLOT ETF has delivered a respectable 8.8% total return since April 2023 with a 5.9% yield. Revisiting my credit investment outlook, I believe following objective indicators like high-yield credit spreads may allow investors to stay invested for longer.
