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Floating rate loans mitigate interest rate risk

Elliot Raphaelson, Tribune Content AgencyThe Savings Game

As long as the Federal Reserve is regularly increasing interest rates, investors in traditional bonds, bond mutual funds and bond ETFs will find the value of their investments falling even if regular interest payments are being made.


  • Own TRP's Floating Rate for my MIL. Not doing much though.
  • Mine too. But it pays 5+ seven-day yield.

    As long as it stays steady, I’m good.
  • edited August 2018
    My floating rate fund (GIFAX) makes up about 15% of my income sleeve, has a yield of about 4%, and is the year-to-date total return leader within its sleeve of six funds which also consist of BAICX, CTFAX, LBNDX, NEFZX & TSIAX Interestingly, year-to-date, only two of the above funds GIFAX and CTFAX have out performed my money market fund GBAXX. Seems, there might be somthing to the saying ... Cash is King ... at least for the near term.
  • Of note is that SPFLX, featured in a Barron’s article by our own Lewis Braham, and mentioned in the article @johnN linked, is an MFO Great Owl. Well worth a look.
  • The investor share of American Beacon Sound Point Floating Rate Income fund, SPFPX is available at $2,500 minimum (instead of $250K for institutional shares) and at a higher expense ratio of 1.11%.
  • edited August 2018
    There's a good overview of floating rate loans by one of the best SA contributors up now. The specific focus is on CEFs, but the first half or so and bits of the rest are about the sector in general.

    Note the subtitle: '"Curb Your Enthusiasm." The authors point out that quality - and this is a junk sector - has been deteriorating for a while, and that next big downturn, the sector will prob'ly just about mirror HY corps. (Of course one of the pluses of loans in the past has been that they're senior to HY and tend to recover considerably more in default; ADS is saying, maybe not the next time.)

    On the other hand, they say, floating loans deserve a place in portfolios, generally speaking, because of the low correlation to equity and traditional bonds.

    If anyone's interested in CEFs, there's a table evaluating the field of individual funds toward the end. Caution, tho -- their evaluation parameters might not be exactly the ones others would choose.
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