BlackRock introduces currency hedged versions of floating rate bond ETF

Sep 8th, 2017 | By | Category: Fixed Income

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BlackRock has introduced GBP and EUR hedged versions of its iShares USD Floating Rate Bond UCITS ETF (LON: FLOT). The GBP hedged share class will be available to trade on the London Stock Exchange (LSE) under the ticker symbol FLOS, while the EUR hedged share class will be available on Xetra and the LSE under the ticker symbol FLOE.

Blackrock introduces currency hedged versions of floating rate bond ETF

The BlackRock ETF is the cheapest floating rate bond ETF listed in Europe.

The move from BlackRock allows investors to minimise exchange rate risk between the dollar and the euro or pounds sterling. It comes at a time when the dollar is losing ground against other major currencies which may be discouraging investors from holding unhedged dollar-denominated assets. Year-to-date, the dollar is down 12.5% against the euro and 5.8% versus the pound sterling.

FLOT was launched in July 2017 and tracks the Bloomberg Barclays US Floating Rate Note < 5 Years Index. The index provides exposure to US dollar-denominated floating rate bonds issued globally.

Floating rate bonds offer coupons that adjust to reflect changes in interest rates, compared with traditional bonds which pay fixed coupons.  To be eligible for inclusion in the index, bonds must be rated investment grade and have a maturity of five years or less.

At present, the index has 89 holdings with a weighted average maturity of 2.1 years, but with an effective duration of just 0.14 years. The US is the largest regional exposure with 55.8% of the weight, followed by supranational (10.0%), Canada (7.0%) and Australia (6.0%).

The fund currently has $21 million in assets, which includes both unhedged and hedged share classes. The unhedged share class has a total expense ratio (TER) of 0.10% while the GBP and EUR hedged shares have a TER of 0.12%.

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