FLRN ETF

The thesis argues that FLRN, a floating rate ETF, is likely to underperform in a falling interest rate environment. The thesis highlights the strong historical performance of FLRN, the anticipated Fed rate cuts, and the potential negative impact of falling rates on FLRN's floating rate exposure. While some market participants are pricing a 50 bps September 2024 Fed cut, our base case predicts only 25 bps, with cuts at each Fed meeting after.

FLRN invests in floating rate investment-grade bonds, resulting in a stable share price and low volatility. The fund currently offers a 5.9% dividend yield, making it a buy for short-term or risk-averse investors. FLRN's performance track-record is reasonably good, with prospective long-term returns in the 2.5% - 4.0% range depending on Fed policy.

SPD Bloomberg Investment Grade Floating Rate ETF is a fixed-income ETF that holds floating rate investment grade bonds. The ETF offers a spread pick-up over treasuries with a 6.06% 30-day SEC yield. FLRN has exhibited a steady performance and a low duration, providing a total return of nearly 6% in 2023 with a modest -2.5% drawdown.

Portfolio managers and investors are seeking alternatives to the traditional 60/40 portfolio due to more stock-bond correlations and abysmal performance in 2022. Floating rate debt offers less risk than equities, with equity-like returns and lacks duration risk. Investors and portfolio managers should consider replacing their equity allocation with floating-rate debt.

For investors seeking momentum, SPDR Bloomberg Investment Grade Floating Rate ETF FLRN is probably on radar. The fund just hit a 52-week high and is up 3.57% from its 52-week low price of $29.67/share.