Daniel Straus iShares Floating Rate Bond ETF FLOT-N COMMENT Aug 20, 2019

Very difficult to earn a stable and safe yield in the U.S. right now. Rates were just cut. If you can get a higher rate with your high interest savings account, think of that instead, not everything has to be in ETFs. There is an actively managed U.S. floating bond rate ETF in Canada, HUF.U is the ticker, it has wider spreads and harder to trade but because it's active and because it uses floating-rate swaps it does pay a little higher. If you are holding for the long-term and can wait to make back those transaction costs, think of HUF.U-T as an alternative to FLOT-N.

Daniel Straus

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COMMENT

Although it’s called “floating-rate”, it is not much of a floating-rate fund. Most of the bonds in it are not floating-rate because there aren’t many floating-rate bonds that are worth buying right now because they all earn about zero percent. This one earns about 1.3% per annum and that is probably what it is going to earn henceforth. 80% of the fund is in 2 to 5 year fixed rate bonds. Very low MER. Better than cash and very safe.

DON'T BUY

Someday this will probably be a good investment but this is not the time. The 10 year bond should be at around 5% and will get there eventually. Then there is the question of short-term interest rates, something that the central bank can control even more. We have a long time to go before they start jacking up short-term interest rates.

SELL

You previously recommended it. Floating rate notes protect you as interest rates rise; the capital loss is embedded in the nominal bonds. However, if rates decline as they are now, this turns against you. Sell as the Fed cuts rates. He has sold this in favour of longer bonds. He does change his mind on stocks and ETFs, so don't buy-and-hold something forever.

BUY

Ways to play the floating rate bond market. It is an opportunity in a rising interest rate environment. Fixed income is very important when rates go up. The bond market is suggesting that the Feds and BoC will raise interest rates in late 2022 or 2023. Keep an eye out for the Fed's announcement this week.

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Daniel Straus iShares Floating Rate Bond ETF FLOT-N COMMENT Aug 20, 2019

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