PGIM Investments launches floating rate ETF
PGIM Investments continues to expand its range of actively managed fixed income ETFs with the launch of the PGIM Floating Rate Income ETF (NYSE Arca:PFRL). The new ETF, which aims to maximize current income by investing primarily in senior floating rate loans, will be managed by PGIM Fixed Income, a leveraged finance manager, which as of 31 December
PGIM is Prudential Financial’s $1.4 trillion global investment management business.
The investment strategy of the PGIM Floating Rate Income ETF reflects the $4.6 billion PGIM Floating Rate Income Fund, which is ranked in the top decile by Morningstar for total returns over the three-, five- and 10-year periods ended March 31 . Both funds are managed by Brian Juliano, Parag Pandya, Robert Cignarella, Ian Johnston and Robert Meyer.
Adjustable rate loans can benefit from rising interest rates because the coupon they pay is reset based on short-term interest rate movements. The latest analysis from PGIM Investments shows that adjustable rate loans have outperformed the broader US bond market 12 to 18 months after the start of previous Fed tightening cycles in the past (see chart above).
“We have seen increased demand for floating rate strategies as investors look to hedge against rising interest rates. In our view, actively managed credit selection will be a differentiating factor between managers in volatile markets, and we are pleased to offer PGIM Fixed Income’s proven strategy as an ETF,” said Stuart Parker, President and CEO of PGIM Investments, in a press release .
“Despite strong fundamentals, uncertainty about developments in Ukraine, inflation and the central bank’s hawkish stance underscore the importance of both credit selection and risk management,” added Brian Juliano, managing director and head of the US leveraged loans team PGIM Fixed Income. “Mechanically, the coupons paid by bank loans reset with short-term interest rate movements, which can help mitigate the impact of rising interest rates. This structure, coupled with active management and a well-researched loan selection process, aims to provide investors with the opportunity to be rewarded when market volatility persists.”
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