FLOT - Register your interestArian Neiron, Managing Director20 June 2017
VanEck, one of the world’s largest ETF providers, will soon launch the VanEck Vectors Australian Floating Rate ETF on ASX under the trading code ‘FLOT’.
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FLOT will trade on ASX and will track the market benchmark for Australian floating rate notes (FRNs), the Bloomberg AusBond Credit FRN 0+ Yr Index. The ETF will offer investors a diversified portfolio of Australian FRNs which offer a higher yield than cash with minimal interest-rate or duration risk, that is, the risk that rising interest rates make the bonds less valuable.
The strategy may suit investors who want to enhance their defensive sources of income and diversify out of cash and term deposits. FLOT may suit a range of investors such as retirees and SMSFs seeking a reliable income while aiming to preserve their capital.
What are floating rate notes?
A FRN is a security that pays interest or a coupon linked to a variable benchmark. Like other bonds they have known maturity dates and sometimes can be repaid early. However, unlike other bonds where income is certain, the income of a FRN varies.
Variable benchmark – in Australia most FRNs pay income set at a margin over the bank bill swap rate (BBSW). For example, the rate might be quoted as “3mth BBSW + 1%”.
Coupons are variable – rather than paying fixed coupons like traditional bonds, FRN coupons move in parallel with BBSW and the margin can be reset periodically.
Investment grade – FRNs are generally investment grade credit quality.
VanEck Vectors Australian Floating Rate ETF (FLOT) will offer three key benefits:
Protection against rising rates – concerns about rising interest rates have prompted many investors to consider moving out of longer-term bonds where duration risk is greater. FRN coupons are designed to rise with short-term interest rates, which helps investors benefit from a rise in interest rates.
Potentially attractive yield compared to bank bills and cash funds – cash and bank bill funds are yielding very low returns, particularly after inflation. FLOT is designed to offer a higher yield in a tradeable and easy-to-access ETF.
Short term, high quality credit – Conservative investors often invest in short-term funds for exposure to investment grade credit. FLOT offers access to the performance of short-term investment grade bonds on ASX.
The Index: Bloomberg AusBond Credit FRN 0+ Yr Index
FLOT will track the Bloomberg AusBond Credit FRN 0+ Yr Index (FRN Index). The FRN Index measures the performance of FRNs issued in the Australian debt market. It is a rules-based, market value weighted index. To be included in the FRN Index a FRN issue must have a published investment grade credit rating from at least one of S&P, Moody’s or Fitch; a minimum outstanding face value of $100 million and a minimum of 1 month to maturity. The FRNs must also be issued in the Australian debt market under Australian law.
Source: Bloomberg, as at 31 May 2017
FLOT is in the final stages of preparation and following its launch, Australian investors will be able to access this opportunity via a simple trade on ASX.
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IMPORTANT NOTICE – FOR USE BY FINANCIAL SERVICES PROFESSIONALS ONLY
This information is prepared in good faith by VanEck Investments Limited ABN 22 146 596 116 AFSL 416755 (‘VanEck’) as the responsible entity and issuer of VanEck Vectors Australian Floating Rate ETF ARSN 619 241 851 (“FLOT”]. Units in FLOT are not currently available. FLOT has been registered by ASIC and VanEck has lodged an application with ASX for FLOT to be admitted to trading status on ASX.
This information is general in nature and not financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Before making an investment decision investors should read the product disclosure statement and with the assistance of a financial adviser consider if it is appropriate for their circumstances. A copy of the PDS is expected to be made available from the commencement of the prescribed exposure period on 20 June 2017 at www.vaneck.com.au or by calling 1300 68 38 37. The PDS is subject to review by ASIC and therefore subject to change.
This information is believed to be accurate at the time of compilation but is subject to change. VanEck does not represent or warrant the quality, accuracy, reliability, timeliness or completeness of the information. To the extent permitted by law, VanEck does not accept any liability (whether arising in contract, tort, negligence or otherwise) for any error or omission in the information or for any loss or damage (whether direct, indirect, consequential or otherwise) suffered by any recipient of the information, acting in reliance on it.
Bloomberg Finance L.P. and its affiliates (collectively, “Bloomberg”) are not affiliated with VanEck and do not approve, endorse, review, or recommend the Fund. BLOOMBERG and the Bloomberg Ausbond Credit FRN 0+ Yr Index (“the FRN Index”) are trademarks or service marks of Bloomberg licensed to VanEck. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to the FRN Index.
The Fund is subject to investment risk, including possible loss of capital invested. Past performance is not a reliable indicator of future performance. No member of the VanEck group guarantees the repayment of capital, the payment of income, performance, or any particular rate of return from the Fund.