The iShares family of exchange-traded funds has launched an ETF version of an actively managed mutual fund that invests in floating-rate securities. Dynamic iShares Active Investment Grade Floating Rate (symbol: DXV) opened for trading today on the Toronto Stock Exchange.
The ETF is a collaboration between iShares sponsor BlackRock Asset Management Ltd. and 1832 Asset Management LP, best known as portfolio manager for the Dynamic and Scotia mutual funds.
DXV aims to provide monthly distributions of interest income at variable rates, primarily through Canadian investment-grade corporate bonds and interest-rate derivatives. This exposure will be obtained by investing primarily in units of Dynamic Active Investment Grade Floating Rate.
The Dynamic mutual fund began operations in September 2013. The lead portfolio manager is Marc-André Gaudreau, who joined 1832 Asset Management in 2012 as head of the credit team.
In the three years ended Feb. 28, the mutual fund's average annual return is 0.46% for its Series A units. By comparison, the fund's Series F, which pays no compensation to distributors, has returned 0.61% over the same period.
Series F has a management-expense ratio of 0.65%, which is less than half of the 1.43% MER for Series A. The Dynamic iShares version of this mandate will be cheaper still. The ETF's management fee, which covers most operating expenses, is 0.30%. This should result in somewhat higher returns than the mutual fund.
Dynamic's strategy may hold some high-yield issues, provided that the weighted average credit rating of the portfolio is no lower than BBB-, the minimum rating for investment grade. Up to 49% of assets may be invested outside Canada. Currency hedging and short-selling may also be employed at the managers' discretion.
Unlike fixed-income securities, whose prices tend to move in the opposite direction of interest rates, floating-rate securities aren't adversely affected by rising rates. For that reason, floating-rate funds provide diversification within the income portion of an investor's portfolio.
The new Dynamic iShares offering becomes the sixth Canadian-listed ETF specializing in floating-rate securities. The other ETF providers competing in this category are BMO, First Trust, Horizons, Mackenzie and Invesco Canada's PowerShares.
