Inflation fears showered the markets with sell-offs last week, but some analysts aren’t fretting. Investors still spooked by the possibility of rising inflation can turn to the VanEck Vectors Investment Grade Floating Rate ETF (FLTR ).
“Mad Money” host Jim Cramer saw the recent sell-offs as a general overreaction:
“The bond market sees the economy getting ready to reopen … and it figures the last thing we need is more stimulus," said Cramer. “To these bond investors … that’s like throwing gasoline on the Kingsfords. They think the economy will overheat … [and that] we’re going to get some serious inflation.”
As fears of inflation permeated the markets, growth names received the brunt of the blow. In a meeting with the House and Senate, Federal Reserve Chair Jerome Powell remained steadfast in keeping rates low.
“As I see it, Powell and Biden are doing the right thing. I don’t mind a little inflation now and then,” but “investors are selling bonds, pushing long-term interest rates higher,” Cramer said. “When that happens, stock buyers pull back. They always do.”
FLTR seeks to replicate as closely as possible the price and yield performance of the MVIS® US Investment Grade Floating Rate Index, which is comprised of U.S. dollar-denominated floating rate notes issued by corporate entities or similar commercial entities that are public reporting companies in the United States and rated investment grade.
Overall, FLTR gives investors:
- Potential to Benefit from Rising Rates: Floating rate notes have variable coupons that reset periodically.
- Investment Grade Credit Quality: The underlying index is comprised of a non-leveraged portfolio of investment grade floating rate corporate bonds.
- Near-Zero Duration with Enhanced Yield Potential: Floating rate notes may offer higher yields than other short duration instruments.
Making the (Investment) Grade
One distinct advantage of FLTR is that the fund allocates capital into debt issues that are of investment-grade quality, as opposed to debt that may offer higher yields but expose investors to more credit risk. Taking a look at its latest holdings, FLTR holds debt from recognizable bank names such as Morgan Stanley, Citigroup, and Wells Fargo.
FLTR also diversifies its debt holdings with investments in companies domiciled in other parts of the world, such as the United Kingdom, Switzerland, Japan, Germany, Australia, Sweden, and the Netherlands.
The ETF seeks to replicate the price and yield performance of the MVIS® US Investment Grade Floating Rate Index, which is comprised of U.S. dollar-denominated floating rate notes issued by corporate entities or similar commercial entities that are public reporting companies in the United States and rated investment grade. Based on Yahoo! Finance numbers, FLTR has been able to generate a return of 1.35% year-to-date and 2.45% within the past year.
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