PGIM Investments launches floating rate ETF
PGIM Investments continues to expand its suite of actively managed fixed income ETFs with the launch of the PGIM Floating Rate Income ETF (NYSE Arca: PFRL). The new ETF, which seeks to maximize current income by investing primarily in senior floating rate loans, is managed by PGIM Fixed Income, a leveraged money manager with $38 billion in floating rate loan assets under management as of March 31.
PGIM is the $1.4 trillion global investment management business of Prudential Financial.
The PGIM Floating Rate Income ETF’s investment strategy mirrors the $4.6 billion PGIM Floating Rate Income Fund, which ranks in Morningstar’s top decile for total returns over the three-, five-, and ten-year periods. ending March 31. Both funds are managed by Brian Juliano, Parag Pandya, Robert Cignarella, Ian Johnston and Robert Meyer.
Floating rate loans can benefit from rising interest rates because the coupon they pay is reset based on movements in short-term interest rates. Recent analysis from PGIM Investments indicates that floating rate loans have historically outperformed the broader US bond market 12 to 18 months after the start of previous Fed rate hike cycles (see chart above).
“We have seen an increase in demand for floating rate strategies as investors seek to hedge against rising rates. We believe actively managed credit selection will be a differentiator between managers in volatile markets, and we are delighted 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, the uncertainty surrounding developments in Ukraine, inflation and hawkish central bank policy underscore the importance of credit selection and risk management,” added Brian Juliano, Managing Director and head of the US leveraged lending team at PGIM Fixed Income. “Mechanically, the coupons that bank loans pay reset on movements in short-term interest rates, which can help mitigate the impact of rising interest rates. This structure, when combined with active management and a well-documented credit selection process, aims to provide investors with the opportunity to be rewarded as market volatility continues.
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