FLRN ETF Offers Stable Share Price and Good Dividend Yield

The SPDR Bloomberg Investment Grade Floating Rate ETF (FLRN) is a simple investment-grade, floating rate index ETF with a 5.1% dividend yield, slightly higher credit risk and volatility than a t-bills ETF. FLRN tracks the Bloomberg Short-Term Investment Grade Floating Rate Index, which is designed to track the performance of a portfolio of U.S. dollar-denominated, investment-grade corporate bonds with floating coupons.

The SPDR Bloomberg Investment Grade Floating Rate ETF (FLRN) is a simple investment-grade, floating rate index ETF with a 5.1% dividend yield, slightly higher credit risk and volatility than a t-bills ETF. FLRN tracks the Bloomberg Short-Term Investment Grade Floating Rate Index, which is designed to track the performance of a portfolio of U.S. dollar-denominated, investment-grade corporate bonds with floating coupons.

Overview and Analysis

FLRN is an index ETF that tracks the Bloomberg U.S. Dollar Floating Rate Note 5 Years Index. It is composed of short-term, dollar-denominated, investment-grade, floating rate bonds and notes. The fund's investments are quite close to t-bills, but with a bit more in income and risk. Around 15% of the fund's portfolio are loans to the International Bank of Reconstruction and Development and the European Bank for Reconstruction and Development, which are the fund's largest positions.

Risk and Volatility

FLRN's floating rate investments have negligible rate risk or duration, similar to t-bills. This means that the fund's share price is not significantly impacted by changes in interest rates or Fed policy. However, the fund's investments have materially higher credit risk than t-bills, with the fund investing heavily in AA - A securities and smaller investments in those rated BBB. This higher credit risk results in some losses and volatility during downturns, recessions, and periods of market stress. For instance, FLRN's share price declined by around 1% during the March/April 2023 market volatility due to tariffs.

Dividend Yield and Returns

FLRN currently trades with a 5.2% dividend yield, which is higher than most bond ETFs but lower than high-yield bond ETFs. The fund consistently trades with a small spread to t-bills, in the 0.50% - 1.0% range. This spread is consistent with FLRN's higher credit risk and is expected to persist moving forward. FLRN consistently outperforms t-bill ETFs due to its higher dividend yield. However, the fund's performance has been somewhat lower since late 2024 due to cuts, but remains reasonably good given the elevated rates.

Peer Comparison

FLRN can be compared to other similar investments like AAA-rated CLOs. The Janus Henderson AAA CLO ETF (JAAA) is the largest ETF focusing on AAA-rated CLOs. Both FLRN and JAAA have negligible rate risk, higher credit risk, and low overall volatility. However, JAAA seems to have slightly lower credit risk and a higher dividend yield. Both ETFs have liquidity issues, with FLRN being more impacted. Overall, JAAA appears to be a slightly better choice due to its higher dividend yield and lower credit risk.

Conclusion

FLRN's good 5.2% dividend yield and generally stable share price make it an attractive investment opportunity for risk-averse investors and retirees. However, the fund's higher credit risk and volatility compared to t-bills should be considered. JAAA seems to be a broadly similar, slightly superior alternative, but the differences are small, and a hold or sell rating for FLRN is not justified.

References:

[1] https://seekingalpha.com/article/4817114-flrn-simple-cash-plus-etf-stable-share-price-good-dividend-yield
[2] https://www.bloomberg.com/markets/rates-bonds
[3] https://www.quiverquant.com/news/Prospect+Capital+Corporation+Reports+Fiscal+Year+2025+Financial+Results+and+Distribution+Updates