Vanguard adds floating rate ETF, managed fund to product suite

Vanguard has launched an Australian floating rate bond index strategy, available through both an ETF and a managed fund format.

The Vanguard Australian Floating Rate Bond Index ETF (ASX: VFLT) has been listed on the ASX, and became the firm's first floating rate ETF available around the world.

The ETF and managed fund track the Bloomberg AusBond Corporate Liquid FRN 1+ Year Index and provide diversified exposure to Australian dollar-denominated floating rate notes issued primarily by investment-grade corporate borrowers, Vanguard said.

VFLT distributes income monthly and complements Vanguard's broader fixed income range by providing investors with an additional defensive allocation option. It carries a management fee of 0.15% per annum, and the managed fund incurs 0.18% per annum.

Vanguard said the funds were launched amid the growing attention on floating rates products, supported by demand for defensive income solutions between cash and other bond investments.

Advisers and investors are increasingly adopting floating rate exposures for their ability to provide higher income potential, while offering lower interest rate sensitivity than fixed-rate bond investments, it said.

Commenting, Vanguard head of fixed income for Asia Pacific Jean Bauler said the growth of the category reflects a broader shift in how investors are approaching the defensive portion of their portfolios.

Unlike fixed-rate bonds, floating rate notes adjust their coupon payments in line with prevailing interest rates, Bauler added, stating the structure results in lower duration risk, reducing sensitivity to interest rate movements to support more stable capital values.

"Income remains a key priority for many investors, particularly those approaching or in retirement. Investors are increasingly looking for solutions that can deliver regular income with relative stability," Bauler said.

"Floating rate bonds can play a unique role within diversified portfolios because the income adjusts as interest rates move.

"When rates rise, investors can benefit from higher income payments, while the low duration profile helps reduce the price impact typically associated with fixed-rate bonds."

VFLT is also the first floating rate product Vanguard developed and adds to its fixed income platform that manages approximately $4.3 trillion in assets worldwide.

Bauler said fixed income continues to play a vital role in helping investors build resilient portfolios, particularly during periods of market uncertainty.

"For investors seeking income, diversification and stability, fixed income remains a foundational building block. VFLT provides another way for investors to access those benefits through a transparent, low-cost investment solution," he added.

Currently, VanEck's Australian Floating Rate ETF (FLOT) and the Australian Bank Senior Floating Rate Bond ETF (QPON) from Betashares offer similar exposure in the market, which returned 5.12% and 4.66% in the 12 months to July 30. Both charge an annual management fee of 0.22%.