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iShares Rolls Out Floating-Rate Note Fund; UBS Adds to Energy ETN Group

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Last week, a number of funds came to market, including a new iShare fund, two ETNs from UBS, a Neuberger Berman global fund, a Catholic advocacy fund from Aperio, a currency fund from quantitative fund manager Aequam Capital, and a merged Highland Funds product.

In other fund news, Morningstar has announced plans to introduce forward-looking, analyst-driven global fund ratings and a uniform approach for global fund research reports.

1) iShares Announces Launch of Floating Rate Note Fund

BlackRock Inc.on Friday announced that its iShares Exchange Traded Funds business, the world's largest manager of ETFs, has launched its first floating rate note fund: iShares Floating Rate Note Fund (FLOT). The fund is designed for investors to use in a rising rate environment.

“The value of floating rate bonds fluctuates much less in response to market interest rate movements than the value of fixed-rate bonds,” said Russ Koesterich, iShares chief investment strategist, in a statement.

“They can be a key instrument to help fixed-income investors insulate their portfolio in a rising inflation environment. While we don’t see this as a near-term threat, we still believe that interest rates are likely to rise, arguably substantially, in 2012 and beyond,” he added

FLOT is benchmarked to the Barclays Capital US Floating Rate Note <5 Years Index. The market cap-weighted index measures the performance of U.S. dollar-denominated, investment-grade, floating rate notes with less than 5 years to maturity. The bonds that are included in the index must have an original maturity of between 18 months and 5 years and remain in the index until one month prior to maturity.

2) UBS Announces Two New ETNs Designed for Contango in Oil and Natural Gas Markets

UBS Investment Bankannounced the launch of two new Exchange Traded Notes (ETNs)designed to take advantage of potential contango in the oil and natural gas markets. The ETRACS Natural Gas Futures Contango ETN (GASZ) and the ETRACS Oil Futures Contango ETN (OILZ) began trading on Thursday. These ETNs are designed to capitalize on contango in oil and natural gas futures markets, while minimizing the exposure to absolute changes in the underlying prices of these commodities.

GASZ is linked to the performance of the ISE Natural Gas Futures Spread Index, which, through a series of investments in natural gas sub-indices, effectively provides short exposure in front month natural gas futures contracts and long exposure in far-term natural gas futures contracts.

OILZ is linked to the performance of the ISE Oil Futures Spread Index, which, through a series of investments in oil sub-indices, effectively provides a 1x short exposure in front month oil futures contracts and a 1.5x long exposure in midterm oil futures contracts.

3) Neuberger Berman Introduces Global-Allocation Fund

Neuberger Berman Group LLCannounced on June 13 the launch of the Neuberger Berman Global Allocation Fund (NGLAX, NGLCX, NGLIX). It is the firm’s first global portfolio with broad investment latitude and an emphasis on risk management to be offered to mutual fund investors, and blends fundamental and quantitative investment analysis to determine asset allocation and security selection.

The fund, with current assets under management of $1.9 billion, is managed by a team consisting of Wai Lee, chief investment officer of Neuberger Berman’s quantitative investment group, as well as three other portfolio managers from the group: Bobby Pornrojnangkool, Ph.D., Alex Da Silva, and Ping Zhou, Ph.D. The team also includes Joseph Amato, the firm’s president and chief investment officer, and Brad Tank, chief investment officer for fixed income, and may also leverage the expertise of more than 130 of the firm’s dedicated equity and fixed income research analysts.

The fund seeks to provide exposure to global equity, fixed income and currency markets through a variety of investment instruments, including long and short positions in individual securities, index instruments, and ETFs as well as derivatives.

It employs a proprietary top-down asset allocation model to establish a “tactical tilt”—making allocation decisions among the various investment regions and asset classes. It also employs a proprietary bottom-up security selection model to add value by choosing global securities its managers believe are most likely to perform well relative to other investment options.

4) Aperio Group Expands Faith-Based Strategy Offerings with Catholic Advocacy Portfolio

Aperio Group LLC announced June 1 that it has expanded its faith-based Socially Responsive Indexing (SRI) offerings by introducing the Aperio Catholic Advocacy Portfolio. The portfolio, designed for HNW and institutional investors, seeks to match the performance of the broad equity market while meeting and exceeding the U.S. Catholic Council of Bishops (USCCB) guidelines through a combination of security screening and active corporate participation.

The portfolio is the result of a screening process developed by Aquinas Associates. Companies included in its universe must first pass exclusionary screens to ensure they do not exceed a maximum threshold involvement in the following businesses’ activities: those that contradict the sanctity of human life, pornography, military weapons of mass destruction and landmines.

Additionally, companies whose activities involve tobacco, alcohol, and gambling are also excluded. In order to fully comply with the USCCB guidelines, which include active corporate participation, Aquinas Associates (acting on behalf of investors) engages companies on issues including human rights, racial and gender discrimination, labor standards, access to pharmaceuticals, affordable housing/banking, protecting the environment, global warming, access to water, and encouraging corporate responsibility.

Aperio integrates classic portfolio optimization techniques with SRI agendas for engineering more “efficient” socially screened, indexed investment portfolios. The portfolio is designed to track the broad equity market and forecasted to have a tracking error of less than 1%.

5) Aequam Capital Launches Aequam Currencies Fund

Aequam Capital, an independent French quantitative fund manager, announced on Thursday the launch of the Aequam Currencies Fund, a UCITS 3-compliant systematic multi-currency fund.

Available in two currencies, the euro and the U.S. dollar, it is uncorrelated to bond and equity markets. It has a volatility target similar to that of equity markets and is particularly adapted to investors’ constraints.

The fund is managed by Lionel Lefebvre, Arnaud Chrétien and Alonso Rivas. The fund targets investments from professionals such as private banks, multimanagers, institutions, treasuries and family offices.

Investing in a universe made up of the G10 currencies and 9 emerging market currencies, the fund’s performance is based on four drivers:

  • Trend following (identification of currency pair trends)
  • Carry trade (taking advantage of short-term differences in interest rate spreads between two currencies)
  • Evolution of the dynamics of interest rate movements
  • Risk appetite (a proprietary indicator measuring the evolution of investor appetite for risk).

The fund distinguishes itself by its rigorous management of risk through diversification of underlying investments. Simultaneous positions are held in a minimum of 15 currency pairs. It also exhibits weak correlation among different investment strategies. Fund management is based on risk (operational, liquidity, counterparty, portfolio, research and market), with risk management both methodical and constrained by a predefined risk budget – VaR 5, weekly, 95%.

6) Highland Merges Two Leading Floating-Rate Funds

Highland Fundsannounced on June 13 that it has merged the Highland Floating Rate Advantage Fund (XSFRX) and the Highland Floating Rate Fund (XLFAX) into the Highland Floating Rate Opportunities Fund (HFRAX). The new fund offers investors better liquidity features and expanded parameters to meet its investment objective.

The merger was in direct response to investor demand for an open-ended, daily liquid mutual fund focused on the floating rate, or bank loan, asset class. In addition to improved overall liquidity, the new fund is expected to offer a lower expense ratio than its predecessor fund, the Highland Floating Rate Advantage Fund.

To best achieve its investment objective of providing a high level of current income consistent with the preservation of capital, the new fund has the flexibility to invest up to 20% of its assets in nonfloating rate securities and the ability to hedge against systemic risk.

The new fund will have approximately $930 million in total assets; it offers A, B, C, and Z share classes, with tickers HFRAX, HFRBX, HFRCX, and HFRZX, respectively. Its portfolio manager is Greg Stuecheli, who had been the named portfolio manager since December 2008 for the merged funds.

7) Morningstar to Introduce Forward-Looking Morningstar Analyst Rating for Funds

Morningstar, Inc. (MORN)announced on June 9 its plans to introduce forward-looking, analyst-driven global fund ratings and a uniform approach for global fund research reports. The ratings and reports will be based on analysts’ convictions about a fund’s ability to outperform its peer group and/or relevant benchmark on a risk-adjusted basis over the long term. The company plans to launch the new ratings and research reports in the U.S., Canada, Europe, Asia, Australia, and New Zealand in the fourth quarter.

The new rating is a qualitative, forward-looking measure based on analyst research; while it will not replace star ratings, and existing star rating methodology will not change, it will supplement the star rating. It will use five ratings—AAA, AA, A, Neutral, or Negative.

The new ratings will be available for free on A written analysis of the fund and an explanation of the analyst rating will be available through paid premium membership. Financial advisors will have access to the analyst ratings and the in-depth Morningstar Global Fund Research Reports for funds available for sale in the U.S. through Morningstar’s advisor software products.

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