The trend towards rate normalisation has been exploited by Blackrock, which has launched a floating rate bond fund designed to protect investor portfolios against a rise in interest rates.
The iShares $ Floating Rate Bond Ucits ETF provides exposure to US dollar-denominated floating rate bonds, which offer coupons that adjust to reflect changes in interest rates rather than paying fixed rates like normal bonds.
Rate normalisation is increasingly anticipated and fund managers, including Franklin Templeton, have been launching floating rate bond funds since at least 2015 to hedge against increases.
The bonds held in the BlackRock fund’s underlying index are rated investment grade or higher and have a maturity of five years or less.
BlackRock said this allowed investors to reduce duration and protect portfolios against periods of rising interest rates.
Concerns about rising rates have prompted many investors to consider moving out of longer-duration bonds, BlackRock said.
Brett Pybus, a regional iShares fixed income strategy head at BlackRock, said: “Our focus continues to be on developing a broad and granular range of ETFs that help investors build precise and cost-efficient portfolios, and this fund is testament to that.”
The fund is physically replicating, meaning it holds the underlying securities of the index, and it has a total expense ratio of 0.10%.
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