ETF Pipeline: Floating Rate Bonds, European Bonds, And More

by on April 22, 2011 | ETFs Mentioned:

The past week has seen the continuation of brisk expansion in the ETF industry, with more than a dozen new products debuting. The product pipeline continues to fill as well, with the most noteworthy addition being PIMCO’s proposed Total Return ETF. Many of the other recent filings haven’t brought nearly the level of attention paid to the potential entrance of bond king Bill Gross into the ETF space, but there have been several interesting developments on the product development front over the last several days:

iShares Plots Floating Rate Bond ETF

iShares, the San Francisco-based ETF issuer known for its dominance of the ETF industry, continues to be active on the product development front, recently filing with the SEC for a new variable rate bond fund. The proposed fund would track a benchmark that measures the performance of U.S. dollar-denominated, investment grade floating-rate notes. The index will have a focus on the shorter end of the curve as securities in the benchmark have a remaining maturity of greater than one month but less than five years. As of the end of February, there were 281 issues in the underlying index [see also Active ETF Blockbuster: PIMCO Files For Total Return Fund].

All of the issues in the index pay a variable coupon rate and a majority of them are tied to the 3-month LIBOR, with a fixed spread. There are few ETF options for investors seeking exposure to floating rate debt; Market Vectors filed for an investment grade floating rate bond ETF (FLTR) about nine months ago, and PowerShares recently debuted a senior loan ETF whose underlying holdings reset on a regular basis.

With concerns about interest rate hikes intensifying, interest in floating rate debt may be on the rise [also see 2010: Year Of The Bond ETF].

Van Eck Targets European Bonds

Van Eck is best known for its funds focusing on hard assets producers and emerging markets, but its recent SEC filings laid out plans for a pair of international bond ETFs.

The Market Vectors European Sovereign Bond ETF would seek to replicate an index comprised of local currency-denominated bonds of sovereign issuers located in Europe, excluding Russia. This ETF would focus on investment grade debt. Existing products in the International Government Bonds ETFdb Category offer seemingly similar exposure, though many of these, such as the SPDR Barclays Capital International Treasury Bond ETF (BWX) focus heavily on Japan and Western European countries. The proposed Van Eck fund would include a host of Western European countries, including Armenia, Azerbaijan, Bulgaria, Croatia, Kazakhstan, Kosovo, Moldova, Montenegro, and Poland [see also Global X Proposes Two MLP ETFs].

The other proposed fund is the Market Vectors European High Yield Bond ETF. That ETF would include the same countries as the aforementioned fund, but would focus instead on local currency debt rated below investment grade.

iShares Tacks On Target Retirement Date ETFs

iShares laid out plans to tack on two more target retirement date ETFs to its existing suite of products, outlining the iShares S&P Target Date 2045 Index Fund and iShares S&P Target Date 2050 Index Fund. The company currently offers a lineup of products designed for investors with target retirement dates between 2010 (TZD) and 2040 (TZV).

These funds are designed as “one stop shops” for investors, with holdings shifting from equities to fixed income as the target date approaches. Interest has been minimal–the current offerings have less than $70 million in aggregate assets–but the recent filing indicates iShares is committed to this segment of its product lineup.

Schwab Plans Agg Bond ETF

We could soon have have four ETFs linked to the Barclays Capital U.S. Aggregate Bond Index, after Charles Schwab laid out plans for a fund that would replicate that broad-based measure of investment grade bonds. The filing made no mention of expenses for the Schwab U.S. Aggregate Bond ETF (SCHZ); Vanguard’s BND charges 0.12% while iShares’s AGG charges 0.24%. Schwab has historically attempted to compete on a cost basis, so it wouldn’t be surprising if this proposed ETF undercut existing offerings [see also All-ETF Portfolio For Cheapskate Investors: How Low Can We Go?].

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Disclosure: no positions at time of writing.