Invesco is launching two floating rate note ETFs on Xetra, denominated in euros, and one more on the LSE, denominated in dollars, as it sees increasing investor demand for products that can help with concerns around rising interest rates.
The ETFs (see table below for further details) come after data suggests some 20% of flows to European fixed income ETFs went to FRN ETFs in 2017, and some 55% in the first quarter of 2018.
The products aim to delivery returns less fees by investing in physical underlying assets of the benchmark indices; chiefly the Bloomberg Barclays FRN indices in dollars and euros with some refinements. Constituent bonds in the indices acquired must have a minimum issuance of $500m/€500m, will be removed if they have been in issuance for 2.5 years to ensure they are still actively traded, and must have a least 2.5 years maturity when issued.
Paul Syms, head of EMEA ETF Fixed Income Product Management at Invesco, said: “We expect these ETFs to appeal to investors who either think bond yields are going to rise or who just want to take a defensive stance on interest rates. Instead of paying a fixed coupon, an FRN pays coupons linked to a stated benchmark rate. For instance, you could have an FRN paying 0.70% above Libor. If Libor goes up, the coupon goes up.”
“We believe that making even simple improvements to a standard FRN index has the potential to deliver superior results for investors while also making them more efficient to replicate. With these ETFs, we continue to build out our range of low cost passive fixed income ETFs following the launch of our broad investment grade and hard currency emerging market ETFs towards the end of last year.”
|ETF name||Bloomberg code||Exchange||Trading currency||Ongoing charge (p.a.)|
|Invesco USD Floating Rate Note UCITS ETF||UFLT LN||LSE||USD||0.10%|
|Invesco USD Floating Rate Note UCITS ETF – EUR hedged||UFLE GY||Xetra||EUR||0.12%|
|Invesco EUR Floating Rate Note UCITS ETF||EFNT GY||Xetra||EUR||0.12%|