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Invesco offers new ETFs to hedge rising rates

ETF

Invesco is launching three exchange traded funds (ETFs) for investors concerned about rising interest rates.

The Ucits-compliant ETFs provide passive exposure to floating rate notes (FRNs) – a debt instrument with a variable interest rate – which the group says has seen increased investor because of concerns about rising rates.

In 2017, 20% of the flows into European fixed income ETFs went into FRN ETFs – but in Q1 2018 this figure had risen to 55%.

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.

The new ETFs aim to deliver the returns of their respective benchmark indices, less fees, by investing physically in the underlying constituents. The indices are based on the standard Bloomberg Barclays FRN indices in USD and EUR, but with a few refinements.

The bonds in the index: must have a minimum issuance of $500m to ensure liquidity; are removed after they have been in issuance for 2.5 years to ensure they are still actively traded, and have at least 2.5 years maturity when they are issued.

 

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%

David Robinson

David Robinson is the editor of Expert Investor. He has 18 years’ experience as a business journalist and editor. In the past he has written for the Guardian newspaper and The Telegraph, and worked as...

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