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I would urge caution with bank loan funds. A safer option might be to go with a flexible fixed-income fund, where the managers are able to adjust allocations. A number of these kind of funds have reduced exposure to bank loan securities recently, believing the big gains have already occurred and that there is the beginnings of 'froth' in the sector.
Caution and a dislike of bank loan funds has been a common thread on this board all year as they keep ticking higher and higher. I prefer to let the market dictate my actions and they are a huge part of my portfolio, albeit on a short lease of a 1.2% trailing stop.
Reply to @BobC: I would pick a well managed floating rate fund over flexible duration funds in current scenario for tactical allocation and vice versa for long term strategic allocation. Latter type of funds sounds good in theory but difficult to do in practice.
Trading market for bonds is so illiquid and spreads so high. It gets worse when everyone is trying to do same thing. So manager is constrained to change duration only as bonds mature. It is like trying to drive a 18 wheeler in a formula 1 race track.
Supply to meet the demand is a problem in floating rate bonds in these frothy times, so you need a manager who is willing to sit on cash if necessary.
Bank loan funds do better when rates are rising, which won't happen for awhile. But still provide decent yield and steady NAV. Maybe not worth buying now but a good hold.
Howdy cman, You noted: " Trading market for bonds is so illiquid and spreads so high. It gets worse when everyone is trying to do same thing." Which bond market(s) do you reference as being illiquid? Thank you. Regards, Catch
Reply to @catch22: All individual bonds trading before maturity (not new issues) compared to equity trading as bond fund managers may have to deal with. People buying bond funds have very little idea about how this trading looks like. Trading baseball cards is easier.
Comments
Trading market for bonds is so illiquid and spreads so high. It gets worse when everyone is trying to do same thing. So manager is constrained to change duration only as bonds mature. It is like trying to drive a 18 wheeler in a formula 1 race track.
Supply to meet the demand is a problem in floating rate bonds in these frothy times, so you need a manager who is willing to sit on cash if necessary.
You noted: " Trading market for bonds is so illiquid and spreads so high. It gets worse when everyone is trying to do same thing."
Which bond market(s) do you reference as being illiquid?
Thank you.
Regards,
Catch