“The value of floating rate bonds fluctuates much less in response to market interest rate movements than the value of fixed rate bonds,” said Russ Koesterich, chief investment strategist at BlackRock. “They can be a key instrument to help fixed income investors insulate their portfolio in a rising inflation environment.”
Floating rate notes pay a variable rate coupon unlike most fixed income investments, and issuers sometimes prefer floating rate notes in order to take advantage of lower borrowing costs.
“FLOT can serve several roles in an investor’s portfolio,” said Matt Tucker, iShares head of fixed income strategy. “It can provide investors with an opportunity to reduce exposure to interest rate risk in the portfolio. In addition, it can serve as a diversifier within traditional fixed income, as well as multi-asset class portfolios. Investors can also use FLOT to gain exposure to credit with less interest rate exposure or as a complement to other short duration strategies.”
The fund is benchmarked to the Barclays Capital U.S. Floating Rate Note <5 Years Index.