What is Floating Rate Note BlackRock by dominic.cecilia

VIEWS: 0 PAGES: 12

									Introduction to iShares Floating Rate
Note Fund (FLOT)
Introduction to iShares Floating Rate Note Fund (FLOT)


What is FLOT?
  iShares Floating Rate Note Fund (FLOT) tracks the Barclays US Floating Rate Note <5 Years Index
  A fund that helps fixed income investors insulate their portfolio in a rising rate environment


What is a Floating Rate Note?
  Floating rate notes are investment grade bonds that pay a floating rate coupon, rather than a fixed rate
   coupon
  The value of floating rate bonds fluctuates much less in response to market interest rate movements
   than the value of fixed-rate bonds, and may therefore be used to help fixed income investors insulate
   their portfolios in a rising rate environment


Why FLOT?
  Opportunity to reduce overall interest rate risk in the portfolio
  Ability to gain exposure to credit with less interest rate exposure
  Complement or alternative to other short duration strategies
  Diversifier within a traditional fixed income, as well as multi-asset class portfolio




                                                                                                              2
iShares Floating Rate Note Fund (FLOT)

                                                                                                            iShares Floating Rate Note Fund
Fund Facts                                                                                                    Maturity Profile as of 2/28/2013
   Inception date: June 14, 2011                                                                               4-5 Yrs, 6%

   Fund holdings: 261 securities*                                                                   3-4 Yrs, 7%

   30-Day Average Volume**: $15.0 million                                                                                                        0-1 Yrs, 34%
                                                                                             2-3 Yrs, 16%
   Expense Ratio: 0.20%
   Benchmark: Barclays US Floating Rate Note <5 Years
    Index


Index Details
   Index measures performance of USD-denominated,                                                                            1-2 Yrs, 37%
    investment grade, floating rate notes
                                                                                                            iShares Floating Rate Note Fund
   Maturity range of securities: 1 month to 5 years,                                                          Sector Profile as of 2/28/2013
    original maturity of at least 18 months                                                                             Foreign Local
                                                                                                 Supranational,          Gov, 0.87% Utilities,
   Market cap weighted, rebalanced monthly                                                         2.81%                                 0.80%
                                                                                                  Cash, 3.97%
   Investment grade securities—must be rated at least
    Baa3/BBB-/BBB using the middle rating of Moody’s,                                              Foreign
                                                                                                  Agencies,
    S&P and Fitch
                                                                                                   8.90%
   NOT part of the Barclays US Aggregate Index, which is
                                                                                                 Industrials,
    an index with fixed coupon bonds                                                               19.19%

 *As of 2/28/2013. Holdings are subject to change.                                                                                               Financials,
 ** Source: Bloomberg: As of 2/28/2013. The 30-Day average trading volume is the average dollar amount                                            63.48%
 traded over the last 30 trading days

 Source: iShares.com


                                                                                                                                                                 3
Floating rate notes not to be confused with bank loans


  Floating rate notes are not bank loans
  Many funds with “Floating Rate” in the fund name are actually bank loan funds
  Key differences
   • Floating Rate Note = Typically Investment Grade
   • Bank Loan = Typically High Yield



                         Floating Rate Notes                                        Bank Loans
                 Bonds issued in the capital markets   Loans typically arranged by syndicates of commercial or investment banks
                           Typically unsecured                        Typically secured by the issuer’s collateral
                       Typically investment grade                         Typically below investment grade
                       Pay a floating rate coupon                             Pay a floating rate coupon
                      Settle on trade day +3 days                 Settlement times vary (range from 5 to 40+ days)




   For illustrative purposes only.




                                                                                                                                  4
Mechanics of Floating Rate Notes


 Coupons on floating rate notes are adjusted periodically on coupon reset dates based on the
 following formula:


 Coupon              =                   Reference Index Rate                                          +                   Fixed Spread

                                         Reference index is a short-                                                Fixed spread is determined
                                         term interest rate, typically                                                at the time of issuance
                                           the 1-month or 3-month                                                      based on the market’s
                                                   LIBOR1                                                            perception of the issuer’s
                                                                                                                            credit risk.2

   Example:
   Coupon at Issuance = 0.25% + 0.50% = 0.75%
   Coupon at First Reset = 0.35% + 0.50% = 0.85%
   Coupon at Second Reset = 0.30% + 0.50% = 0.80%

    1   LIBOR (London Interbank Offer Rate) is the rate an international bank would charge another banking institution to borrow from it for a certain period of time
    2 Note   the fixed spread does not change over the life of the bond




                                                                                                                                                                        5
Primary Risks of Floating Rate Notes


Interest Rate Risk
  Minimal interest rate risk
  Fund Duration = 0.12*
  Coupons are adjusted monthly or quarterly with changes in the reference interest rate


Credit Risk
  Unsecured obligations of the issuer
  Subject to risk of default or changing market sentiment of the issuer
  Fund Credit spread duration** = 1.59
  For every 1% increase in credit spreads, the price of bonds will be expected to decline by 1.59%.




    *As of 2/28/2013. Fund holdings subject to change.
    * Duration measures the price sensitivity of bonds to changes in interest rates. The higher the duration, the greater the interest rate risk.
    ** Spread duration measures the price sensitivity of bonds to changes in credit spreads.



                                                                                                                                                    6
Coupon and Price Behavior of Floating Rate Notes


                      During the last period when rates rose, the coupons of the floating rate notes increased as 3 month
                       LIBOR increased


       Coupon Reset During Last Period When Rates Rose                                                                    Average Price During Last Period When Rates Rose

                      6                                                                                                  102                                                                                  7


                                                                                                                         100                                                                                  6
                      5
Interest Rates (%)




                                                                                                                          98                                                                                  5




                                                                                                                                                                                                                  Interest Rate (%)
                      4




                                                                                                         Average Price
                                                                                                                          96                                                                                  4
                      3
                                                                                                                          94                                                                                  3
                                                                                                                                                                                  BOND PRICES
                      2                                                                                                                                                           DECLINED WHEN
                                        COUPONS RESET                                                                     92                                                      COUNTERPARTY                2
                                        WITH CHANGES IN                                                                                                                           AND CREDIT RISK
                      1                 LIBOR – NOT FED                                                                                                                           INCREASED
                                        FUNDS RATE                                                                        90                                                                                  1


                      -                                                                                                   88                                                                                  0
                          2004   2005    2006   2007    2008    2009    2010    2011    2012      2013                         2004   2005   2006    2007    2008     2009    2010    2011    2012     2013

                                 Barclays US Floating Rate Note <5 Years Index - Average Coupon                                           Barclays US Floating Rate Note <5 Years Index - Average Price
                                 Fed Funds Target                                                                                         Fed Funds Target
                                 3 month LIBOR                                                                                            3 month LIBOR


            Sources: Barclays Capital, Bloomberg as of 2/28/2013.                                                        Source: Barclays Capital & Bloomberg, as of 2/28/2013.
            *Fed Funds Target Rate is the interest rate that banks charge each other to borrow money.
                                                                                                                         On 9/18/2011 and 5/28/2012, the average price for the index was interpolated due to a
                                                                                                                         pack of pricing for some of the bonds in the index.


                     Past performance does not guarantee future results.



                                                                                                                                                                                                                     7
Potential Role of FLOT in a portfolio


FLOT can serve several functions in an investment portfolio
  Opportunity to reduce overall interest rate risk in the portfolio
  Ability to gain exposure to credit with less interest rate exposure
  Complement or alternative to other short duration strategies
  Diversifier within a traditional fixed income, as well as multi-asset class portfolio

Correlation of Monthly Returns to Barclays US Floating Rate Note <5 years Index: Oct 2003 – Feb 2013


                           1.0

                           0.8
  Correlation Coefficent




                           0.6

                           0.4

                           0.2

                           0.0

                           -0.2

                           -0.4
                                   Barclays US     Barclays 1-3 Year   Barclays 1-3 Year   Barclays Short               S&P 500             MSCI EAFE Index
                                  Aggregate Bond   US Treasury Bond    Credit Bond Index   Treasury Bond
                                       Index             Index                                 Index
                                                                                           Source: Bloomberg as of 02/28/2013.
                                                                                           Correlation time period: 10/2003-2/2013, based on monthly returns.
                                                                                           Correlation measures how two securities move in relation to each other. Correlation
                                                                                           ranges between +1 and -1. A correlation of +1 indicates returns moved in tandem,
                                                                                           -1 indicates returns moved in opposite directions, and 0 indicates no correlation.


                                                                                                                                                                                 8
Important Notes


Carefully consider the iShares Funds’ investment objectives,
risk factors, charges and expenses before investing. This and
other information can be found in the Funds’ prospectuses,
which may be obtained by calling 1-800-iShares (1-800-474-
2737) or visiting www.iShares.com. Read the prospectus
carefully before investing.

Investing involves risk, including possible loss of principal.
Securities with floating or variable interest rates may decline in value if their coupon rates do not keep pace with comparable
market interest rates. Narrowly focused investments typically exhibit higher volatility and are subject to greater geographic or
asset class risk. The Fund is subject to credit risk, which refers to the possibility that the debt issuers will not be able to make
principal and interest payments or may have their debt downgraded by ratings agencies. The Fund's income may decline
when interest rates fall because most of the debt instruments held by the Fund will have floating or variable rates.




                                                                                                                                       9
Important Notes


The information provided is not intended to be a complete analysis of every material fact respecting any strategy and has
been presented for educational purposes only.
Asset allocation models and diversification do not promise any level of performance or guarantee against loss of principal.
Shares of iShares Funds are bought and sold at market price (not NAV) and are not individually redeemed from the Fund.
There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.
Mutual funds and iShares Funds are obliged to distribute portfolio gains to shareholders by year-end. These gains may be
generated due to index rebalancing or to meet diversification requirements. Trading shares of the iShares Funds will also
generate tax consequences and transaction expenses. Certain traditional mutual funds can be tax efficient as well.
When comparing stocks or bonds and iShares Funds, it should be remembered that management fees associated with fund
investments, like iShares Funds, are not borne by investors in individual stocks or bonds. The annual management fees of
iShares Funds may be substantially less than those of most mutual funds. Buying and selling shares of iShares Funds will
result in brokerage commissions, but the savings from lower annual fees can help offset these costs.
Index returns are for illustrative purposes only and do not represent actual iShares Fund performance. Index performance
returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest
directly in an index. Past performance does not guarantee
future results.
BlackRock does not provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this
communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support
the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular
circumstances from an independent tax advisor.




                                                                                                                              10
Important Notes


The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).
The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Cohen & Steers Capital
Management, Inc., European Public Real Estate Association (“EPRA®”), FTSE International Limited (“FTSE”),
JPMorgan Chase & Co., MSCI Inc., Markit Indices Limited, Morningstar, Inc., The NASDAQ OMX Group, Inc.,
National Association of Real Estate Investment Trusts (“NAREIT”), New York Stock Exchange, Inc., Russell
Investment Group or S&P Dow Jones Indices LLC, nor are they sponsored, endorsed or issued by Barclays Capital
Inc. None of these companies make any representation regarding the advisability of investing in the Funds.
BlackRock is not affiliated with the companies listed above.
Neither FTSE nor NAREIT makes any warranty regarding the FTSE NAREIT Real Estate 50/Residential/
Retail/Mortgage or Industrial/Office Index; all rights vest in NAREIT. Neither FTSE nor NAREIT makes any warranty
regarding the FTSE EPRA/NAREIT Developed Real Estate ex-US/North America/Europe/Asia Index; all rights vest
in FTSE, NAREIT and EPRA. All rights in the FTSE Developed Small Cap ex-North America Index vest in FTSE.
“FTSE®” is a trademark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is
used by FTSE under license.
©2011-2013 BlackRock. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock.
All other marks are the property of their respective owners. iS-9366-0313




  Not FDIC Insured • No Bank Guarantee • May Lose Value




                                                                                                                11
                      For more information, visit
                      www.iShares.com


Get Started                Track-based learning
Education Center           Watch, listen, get credit
Product Information        Holdings, price and return information
Document Library           Client presentations and materials
Tools & Charts             Portfolio modeling tools and reports



                        1-800-iShares



                                                                    12

								
To top