Van Eck [see profile] just launched another Market Vectors ETF, this one focused on "U.S. dollar-denominated investment grade floating rate notes." Today the New York-based mutual fund firm revealed the Market Vectors Investment Grade Floating Rate ETF (FLTR) [see filing] on the NYSE Arca.
"FLTR may offer an attractive alternative for conservative investors seeking investment grade quality, lower interest rate risk, and attractive income potential relative to other instruments of similar duration," stated Van Eck principal Jan van Eck.
The new ETF costs 19 basis points and is PMed by Michael Mazier. Van Eck handles administration and distribution of the ETF, while Bank of New York Mellon handles custody, fund accounting and transfer agency. Dechert provides counsel and Ernst & Young is the ETF's independent accountant.
FLTR isn't the only new floating rate mutual fund coming to market. The MFWire reported earlier this month that Pimco is launching its own actively-managed Senior Floating Rate Fund (see The MFWire, 4/20/2011).
Company Press Release
NEW YORK--New York-based asset manager Van Eck Global announced today that it has launched Market Vectors Investment Grade Floating Rate ETF (NYSE Arca: FLTR), an exchange-traded fund (ETF) that seeks to track, before fees and expenses, the Market Vectors Investment Grade Floating Rate Index (MVFLTR), an index consisting of a portfolio of corporate U.S. dollar-denominated investment grade floating rate notes.
FLTR represents a first-of-its-kind floating rate investment product because of its investment grade focus. Approximately $63 Billion* is invested in floating rate mutual funds, most of which are invested in low quality, non-investment grade bank loans (aka senior loans or leveraged loans). FLTR is an innovative departure from typical floating rate funds because its underlying index tracks a portfolio of high quality, floating rate notes rather than tracking bank loans.
“Currently, interest rates are very low, causing income investors to sacrifice credit quality or live with the interest rate risk of longer maturity bonds in order to find yield,” said Jan van Eck, Principal at Van Eck Global. “FLTR may offer an attractive alternative for conservative investors seeking investment grade quality, lower interest rate risk, and attractive income potential relative to other instruments of similar duration.”
Floating rate notes, or “floaters”, have coupons that vary and are linked to three-month LIBOR (London Interbank Offered Rate), the interest rate large banks charge each other for short-term loans, or other money market reference rates plus a spread. The spread remains constant but the coupon’s benchmark rate is reset to the prevailing reference rate every three months on average. This coupon reset feature shortens duration, helping to reduce the notes’ price fluctuation as interest rates change.
Floaters are corporate debt issues and subject to credit risk. Their prices can be negatively affected if investor appetite for corporate credit risk declines. This occurred during the most recent credit crisis when investors shunned even highly rated corporate bonds, fixed and floating alike. Further, most issuance of floaters is from financial companies and a broad portfolio of floaters, such as FLTR, may be particularly susceptible to financial sector risk.
FLTR is intended to track, before fees and expenses, the performance of Market Vectors Investment Grade Floating Rate Index (MVFLTR), published by 4asset-management GmbH. The Index consists of U.S. dollar-denominated floating rate notes issued by corporations and rated investment grade (BBB-/Baa3 or better) by at least one of three rating services: Moody’s, Standard & Poor’s, or Fitch. Index constituents must be floating rate notes with a variable coupon, have an outstanding par value of at least $500 million and have a time to maturity of at least 6 months as of each rebalance date.
As of March 31, 2011, the Index was comprised of 188 securities across five sectors. The financial sector, however, made up the largest portion of the index with a weight of 94.9 percent. The Index had an average yield of 1.06 percent and a modified duration of approximately 0.10, as of the same date.
FLTR carries a gross expense ratio of 0.49 percent and a net expense ratio of 0.19 percent. Expenses are capped contractually until September 1, 2012. Cap excludes certain expenses, such as interest.
FLTR is Van Eck’s 33rd Market Vectors ETF and is the seventh of its fixed-income ETFs spanning municipal, international and corporate bond categories— Emerging Markets Local Currency Bond ETF (EMLC), High-Yield Municipal Index ETF (HYD), Intermediate Municipal Index ETF (ITM), Long Municipal Index ETF (MLN), Pre-Refunded Municipal Index ETF (PRB) and Short Municipal Index ETF (SMB).
About Van Eck Global
Founded in 1955, Van Eck Associates Corporation was among the first U.S. money managers helping investors achieve greater diversification through global investing. Market Vectors exchange-traded products have been offered by Van Eck Global since 2006 and today span several asset classes, including hard assets and international equities, fixed income and currencies. Market Vectors offers municipal bond ETFs including short-, intermediate- and long-term ETFs as well as pre-refunded and high-yield ETFs. Market Vectors is currently the U.S.’s sixth largest provider of ETPs.
Van Eck Global also offers mutual funds, variable insurance portfolios, separate accounts and alternative investments. Designed for investors seeking innovative choices for portfolio diversification, Van Eck Global’s investment products are often categorized in asset classes having returns with low correlations to those of more traditional U.S. equity and fixed income investments.
Floating rate notes are debt issues with variable coupon payments that are pegged to a reference rate plus a spread. Coupons are reset periodically and can rise or fall with changes in the reference rate. The Fund is subject to financial services sector risk, restricted securities risk, credit risk, interest rate risk, and call risk, among others. The Fund will generally invest a significant portion of its assets in the financial services industry. As such, the Fund will be sensitive to changes in, and its performance will depend to a greater extent on, the overall condition of the financial services sector. The Fund will generally invest a portion of its assets in Rule 144A securities. Rule 144A securities are restricted securities. They may be less liquid than other investments because, at times, such securities cannot be readily sold in broad public markets and the Fund might be unable to dispose of such securities promptly or at reasonable prices. A restricted security that was liquid at the time of purchase may subsequently become illiquid. For a more complete description of these and other risks, please refer to the Fund’s prospectus or summary prospectus. The Fund may loan its securities, which may subject it to additional credit and counterparty risk.
The Fund is not sponsored, endorsed, sold or promoted by Wells Fargo & Company, Wells Fargo Securities, LLC or any of their affiliates (together, “Wells Fargo”). The Market Vectors Investment Grade Floating Rate Index (the “Index”) is the exclusive property of 4asset-management GmbH, which has contracted with Wells Fargo to create and maintain and Interactive Data Pricing and Reference Data, Inc. to calculate the Index. Neither Wells Fargo nor the Index Calculator guarantees the accuracy and/or completeness of the Index or of any data supplied by it or its agents or makes any warranty as to the results to be obtained from investing in the Product or tracking the Index. The Index is calculated by Interactive Data Pricing and Reference Data, Inc., which is not an adviser for or fiduciary to Market Vectors Investment Grade Floating Rate ETF and, like Wells Fargo, is not responsible for any direct, indirect or consequential damages associated with indicative optimized portfolio values and/or indicative intraday values.
The Market Vectors Investment Grade Floating Rate ETF is not sponsored, endorsed, sold or promoted by 4asset-management GmbH and 4asset-management GmbH makes no representation regarding the advisability of investing in the Fund.
Fund shares are not individually redeemable and will be issued and redeemed at their NAV only through certain authorized broker-dealers in large, specified blocks of shares called “creation units” and otherwise can be bought and sold only through exchange trading. Creation units are issued and redeemed principally in kind. Shares may trade at a premium or discount to their NAV in the secondary market. Investing involves risk, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the investment company carefully before investing. To obtain a prospectus or summary prospectus, which contains this and other information, call 1.888.MKT.VCTR or visit vaneck.com/fltr. Please read the prospectus or summary prospectus carefully before investing.
Van Eck Securities Corporation, Distributor, 335 Madison Avenue, New York, NY 10017