A floating-rate note (FRN) is a bond where the coupon rate is based on a reference rate plus a spread. FRN's re-set every 90 days and for this reason they offer investors:
Attractive Yield vs. Risk: Historically have delivered income consistency and lower volatility.1
Capital Preservation Characteristics: During significant market events, FRN's have exhibited lower drawdowns and maintained liquidity.1
A Hedge to Rising Interest Rates: Low sensitivity to monetary policy tightening because as interest rates rise, the coupon adjusts accordingly.
Rolling with the Punches as Central Banks Fight On.
Less than a year ago the commonly held view was that inflation was transitory. Now, investors are feeling dazed and markets are coming to grips with inflation and expected rate increases in the months ahead. In this webinar we examine the current state of debt markets, the implications for investors and provide defensive portfolio construction ideas for a bond portfolio.
The State Street Floating Rate Fund (the Fund) is a portfolio of high quality, Australian, interest-bearing investments which is actively managed to preserve capital while aiming to deliver monthly income above cash6. The portfolio average credit quality is A+/A.
The Fund offers the following characteristics:
Potential to deliver a yield above the RBA Cash Rate Total Return Index.
Capital Preservation and Liquidity
Aims to preserve capital and maintain liquidity across different market environments.
Aims to deliver monthly income above cash.6
Hedge to Rising Rates
A hedge to rising interest rates and rising bond yields.
Competitive Management Costs of 0.25% p.a. with no performance fee.
Excludes exposure to companies classified as ESG “Laggards” or “Under Performers” as measured by State Street Global Advisors' ‘Responsibility Factor’ (R-Factor™).
How to Access
The Fund is available directly or through a number of platforms. 3
Enhancing the Investment Process with an ESG Aware Lens
Investors have clearly defined expectations for cash and liquidity strategies centred on capital preservation, liquidity, and yield. To enhance this, we employ an ESG aware lens in the Fund, because it provides a complementary signal about credit quality.
Our ESG scoring system is called R-Factor™, and it has been incorporated into the Fund’s investment process in two ways.
An input when assessing company fundamentals to complement traditional financial analysis; and
Assessing relative value opportunities in conjunction with key inputs such as credit quality, maturity, yield, and price. All other things being equal, the fund will have a preference to hold higher scoring ESG credit exposures.
1 As at 31 March 2022. Compared to other bond market segments including: Global Aggregate Bond, US High Yield, Hard Currency Emerging Markets Debt, Senior Loans, Australia Government and Australia Credit. 2 1 year IOS Rate 2yr forward. Source: Bloomberg Finance L.P., as of 5 April 2022. 3 Please check with the platform operator for minimum investment requirements and fees. 4 As of 28 February 2022. Source: State Street Global Advisors. 5 Source: SSGA as of 31 March 2022. 6The Responsible Entity reserves the right to not pay any distribution.
* Zenith: The Zenith Investment Partners (“Zenith”) Australian Financial Services License No. 226872 rating (SST4725AU: June 2022) referred to in this document is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at https://www.zenithpartners.com.au/RegulatoryGuidelines
References to the State Street Floating Rate Fund ("the Fund") in this communication are references to the managed investment scheme domiciled in Australia, promoted by SSGA Australia, in respect of which SSGA ASL is the Responsible Entity.
Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security.
Floating rate securities are often lower-quality debt securities and may involve greater risk of price changes and greater risk of default on interest and principal payments. The market for floating rate securities is largely unregulated and these assets usually do not trade on an organized exchange. As a result, floating rate bank loans can be relatively illiquid and hard to value. Investing involves risk including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss.
The returns on a portfolio of securities which exclude companies that do not meet the portfolio's specified ESG criteria may trail the returns on a portfolio of securities which include such companies. A portfolio's ESG criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.
Responsible-Factor (R-Factor TM) scoring is designed by State Street to reflect certain ESG characteristics and does not represent investment performance. Results generated out of the scoring model is based on sustainability and corporate governance dimensions of a scored entity.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA Australia’s express written consent.
This website is intended for persons resident in Australia. State Street Global Advisors, Australia Services Limited ABN 16 108 671 441, AFSL Number 274900 ("SSGA, ASL") is the product issuer. State Street Global Advisors, Australia, Limited (AFSL Number 238276, ABN 42 003 914 225) (“SSGA Australia”) is the Investment Manager. The material on this website is general information only and does not take into account your individual objectives, financial situation or needs.
You should seek professional advice and consider the Product Disclosure Statement (PDS) and target market determination, available at www.ssga.com, before deciding whether to acquire or continue to hold units in the Funds.
You can access our PDS online or by calling us. The offer made in our PDS is available to persons receiving the PDS within Australia and applications from outside Australia will not be accepted. Past performance is not a reliable indicator of future performance. Investing entails risks and there can be no assurance that State Street Global Advisors will achieve profits or avoid incurring losses.
Investing involves risk including the risk of loss of principal. This material should not be considered a solicitation to apply for interests in the Funds and investors should obtain independent financial and other professional advice before making investment decisions. There is no representation or warranty as to the currency or accuracy of, nor liability for, decisions based on such information. Performance quoted represents past performance, which is not a reliable indicator of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.