With the anticipated coming FOMC rate increases looming, what fixed income funds will fair the best?

Old_Skeet

With the upcoming anticipated rate increase(s) I have kept the duration towards the short end within my income sleeve along with maintaining a well diversified income selecton of mutual funds ranging from a high yield fund with a short duration, a bank loan fund, a couple limited term investment grade bond funds along with several strategic income funds. In addition, I am thinking of adding a mortgage backed securities fund (BMPAX) with a duration of 2.7 years along with a limited term duration muni income fund (LTEBX)) with a duration of 3.0 years. The current duration found in my fixed income sleeve is about 3.0 years. With this, I am looking to stay with good funds that have a short duration and maturity.

I do not have the investment depth and knowledge in the fixed income area of my portfolio that I have on the equity side. With this, I am wondering what other seasoned or accredited investors might be doing to better manage the income side of their portfolio. I can raise my allocation on the fixed income side by a couple of percent and still be towards it's low allocation range of about 25%.

According to a recent Xray analysis study my planned additions would result in an new overall asset allocaton of about 25% cash, 25% bonds, 45% equity and 5% other for the portfolio. This will leave me with enough cash to raise the equity allocation when I feel warranted while still holding an ample cash position to reestablish a CD ladder when interest rates reach a more attractive level.

I just do not want to walk into a rate increase storm and get hammered when I can still hold the cash now targeted to go towards adding these two new fixed income positions.

Any thoughts from others on fixed income funds that are anticipated to fair well during a rising interest rate environment would be appreciated?

Thanks again for your comments and suggestions.

Old_Skeet

Junkster

Barrons discussed this in today's edition. You should be fine with your bank loan fund. They are yielding 5%. But they have been on a relentless roll since February with but a couple down days ala SAMBX (my favorite) and EVFAX. Even better have been LSFYX, JFIIX and HFRZX which has some exposure to equities. Most are already up 5% YTD. Not sure about why you want short duration. That was last year's trade and the short duration funds in categories such as high yield have been the worst performers in 2016 by a wide margin. I am around 50% in bank loan, 35% in junk munis and 15% in corp junk. If the junk munis falter in even the slightest will be rolling them into more bank loan. Junk munis are way overbought and their recent outperformance has been almost entirely due to tobacco bonds. See link below.

http://blogs.barrons.com/incomeinvesting/2016/05/19/tobacco-bond-risks-grow-fitch-loses-confidence-pulls-ratings/?mod=BOLBlog

Old_Skeet

Hi @Junkster,

Thanks for your comment.

In looking at SAMBX and EVFAX they have both offered good recent upside and better returns than my current bank loan fund GIFAX. And, as a trader I can understand why you selected them. But, over the past five years it appears GIFAX has provided a smoother ride with a little better overall return than SAMBX and EVFAX. The Lommis Sayles fund (LSFAX) the A share version of LSFYX is one I looked at at the time I bought GIFAX. It too looked to offer a more bumpy ride than GIFAX but it did provide a little better performance through the years. I went with GIFAX for the smoother ride.

The other two suggustions I'll have to take a closer look at JFIIX which I believe is buy eligable at my brokerage house but I am not so sure that HFRZX is. This is something I'll have to explore.

Thanks again for making comment.

AndyJ

Glad you brought up bank loans, Junkster. I've been selling cef shares pretty aggressively the past 2-3 weeks, and will take a close look at loan funds as a possible (probably temporary) home for some of the pile of cash the selling generated.

Edit: I'm probably a little late to the party; the charts look like the category is starting to at least stall, and an index like BKLN is actually rolling over.