State Street Global Advisors rolled out two fixed income ETFs on December 1. SPDR Barclays Capital Investment Grade Floating Rate ETF (FLRN) and SPDR Barclays Capital Short Term Treasury ETF (SST) help round out the SPDR bond fund offerings, but don’t offer anything new or innovative.
SPDR Barclays Capital Investment Grade Floating Rate ETF (FLRN) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Barclays Capital U.S. Dollar Floating Rate Note < 5 Years Index. The cap-weighted underlying index consists of variable coupon debt instruments, mostly based on a fixed spread over the 3-month LIBOR.
State Street’s sampling approach reduces the 320 index holdings down to 49 for the fund. The FLRN portfolio has an average maturity of 1.5 years, yield to maturity of 2.0%, and a modified adjusted duration of only 0.12 years. The new ETF has an expense ratio of 0.15%. Additional information is located in the FLRN overview, FLRN fact sheet (pdf), and FLRN prospectus (pdf).
FLRN is now the fourth U.S.-listed floating rate ETF, and none have attracted much investor interest. The direct competition includes iShares Floating Rate Note Fund (FLOT) and Market Vectors Investment Grade Floating Rate ETF (FLTR). PowerShares Senior Loan Portfolio (BKLN) holds non-investment grade (“junk”) floating rate securities with longer maturities, which makes it quite different from the other three.
The SPDR Barclays Capital Short Term Treasury ETF (SST) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Barclays Capital 1-5 Year U.S. Treasury Index.
State Street uses a replication approach to mimic the 116 index holdings. SST’s holdings show a 2.8 year average maturity, a yield to maturity of 0.4%, and a 2.7 year modified adjusted duration. The new ETF has an expense ratio of 0.12%. Additional information is located in the SST overview, SST fact sheet (pdf), and SST prospectus (pdf).
The world probably does not need another short-term Treasury ETF with current funds already available from iShares, PIMCO, and Schwab. However, State Street probably needs one with the SPDR name on it to round out its product line.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.
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