Market Vectors Investment Grade Floating Rate ETF is an exchange-traded fund (ETF) that seeks to track, before fees and expenses, the Market Vectors Investment Grade Floating Rate Index (MVFLTR), an index consisting of a portfolio of corporate U.S. dollar-denominated investment grade floating rate notes. As of March 31, 2011, the Index was comprised of 188 securities across five sectors. The financial sector, however, made up the largest portion of the index with a weight of 94.9%. The Index had an average yield of 1.06% and a modified duration of approximately 0.10, as of the same date.
FLTR carries a gross expense ratio of 0.49% and a net expense ratio of 0.19%. Expenses are capped contractually until September 1, 2012. Cap excludes certain expenses, such as interest.
A press release explained that approximately $63 billion are invested in floating rate mutual funds, most of which are invested in low quality, non-investment grade bank loans (aka senior loans or leveraged loans). FLTR’s underlying index tracks a portfolio of high quality, floating rate notes rather than tracking bank loans.
Floating rate notes, or “floaters”, have coupons that vary and are linked to three-month LIBOR (London Interbank Offered Rate), the interest rate large banks charge each other for short-term loans, or other money market reference rates plus a spread. The spread remains constant but the coupon’s benchmark rate is reset to the prevailing reference rate every three months on average. This coupon reset feature shortens duration, helping to reduce the notes’ price fluctuation as interest rates change, according to the announcement.FLTR is Van Eck’s 33rd Market Vectors ETF and is the seventh of its fixed-income ETFs spanning municipal, international and corporate bond categories.