Looking for another fund somewhat like RPHYX to add to the conservative part of my portfolio.
Both FFRHX and LSFYX are both floating rate funds but there is a large difference in return.
Would appreciate if there are some comments on the contents of LSFYX that makes it have this greater return.
There must be a greater risk content in LSFYX.
prinx
Symbol Fund Name 1 Wk 13 Wk YTD 1 Yr 3 Yr (Annualized) 5 Yr (Annualized)
FFRHX Fidelity Float Rate HI 0.25% 1.40% 1.22% 5.79% 5.08% 5.75%
RPHYX RvrPrk:Sh-Tm HY;Rtl 0.10 0.86% 0.71% 4.06% -- -- --
LSFYX Loomis Sayles:SFR & FI; Y 0.28% 2.17% 1.85% 9.45%
prinx
Comments
MWCRX is interesting as well, but DLSNX is most conservative.
Also, another S/T HY fund is ASHDX, though its going to be more volatile than the steadier RPHYX that you own.
Bank loan funds don't seem to come close to this ideal. Just look at the huge price drop in 2008, even for FFRHX. (Admittedly, several funds marketed as enhanced cash funds, notably Schwab Yield Plus, failed miserably also.) So I don't see bank loan funds serving as an alternative fund.
As to why the Loomis Sayles fund has a much higher yield than the Fidelity Fund, several factors pop out: LS credit rating is somewhere between B and CCC (60% of fund rated B, nearly half the rest is lower), vs. BB for the Fidelity fund (higher than most bank loan funds); LS can hold fixed rate securities (longer effective duration, or equivalently, more interest rate risk); LS can use leverage.
Finally, note that the SEC yield between the two funds is smaller than the TTM (trailing twelve month) yield difference. SEC yield is yield that takes into consideration total return - if you buy a bond at a premium (above face value), then it gradually declines in price (NAV) over time. So the total returns are somewhat closer than you may think (though there's still quite a difference between the funds).
In the muni arena, BobC has suggested NEARX. I'm not quite as sanguine about this fund as he is, but I'm happy to acknowledge that it's worth a serious look. (You didn't say whether you were looking for a taxable or tax-sheltered account.)
As I've written before, I like FPA New Income (FPNIX) as a conservative bond fund, but it too is unlike RPHYX. It is certainly not positioned as an enhanced cash fund.
Good question. Unfortunately hard to answer. Here are the thoughts I have. Floating rate funds are obtained by companies that are typically in low credit ratings or they are in a rush to raise funds so they cannot do a normal bond offering in time. Assuming most are low credit rating companies, if they were to offer high yield bonds, they need to offer substantial interest on those bonds. So, they get these floating rate loans from banks at a slightly lower interest but bank loans are the most senior in credit structure. So, the loans get paid first before bond holders. Bank in turn put them in portfolios and sell them to investors much like mortgage bonds are bundled. Floating bond funds buy these assets...
Floating rate funds may return well in an increasing rate environment since duration is short. They are typically steady just like you like but in a liquidity crisis market might disappear and they lost a lot in 2008.
Short term junk bonds are actually very similar to floating rate bond. Shorter term will allow the fund to hold bonds to maturity and new bonds purchased will be at a higher rate as rates increase. However, they will be longer duration than bank loans so they might be slightly more volatile (except RPHYX has comparable low duration)
Secondly, high yield bonds are a proxy for equities. The high yield bond prices have higher correlation with that of the company stock. If interest rates are rising due to the increased expectations better future for the economy, then the company is expected to do better and credit outlook of the company might improve. So, while you might lose a bit on the duration (but still small due to short term nature of above fund) but you may make up some on the credit side and pocket the yield for the period as return. Even if credit quality appreciation does not occur, the Fed will be lifting the interest rates very very slowly and they control the short end of the yield curve more precisely. So, duration based effects will be very very little on these bonds.
In short, which one is better? It is hard to say for sure.
Similar situation exists for TRP and Vanguard funds available through other brokerages. They just don't pay the other brokers to offer them as NTF.
Fidelity prefers to collect money from other to have their funds available at Fidelity fund supermarket instead of paying others.
Fidelity funds appear open and available (TF) at TDA, Schwab, Scottrade, and likely elsewhere. For years, there seems to have been a special arrangement with Muriel Siebert & Co (Siebertnet), where you could get Fidelity funds (including Fidelity Advisor funds) NTF there. It also appears that you can get the institutional (no load) share class of Fidelity Advisor funds (albeit with a TF) through Vanguard, e.g. New Insights I FINSX - Danoff's Fidelity Advisor fund.
Vanguard seemed to change how it sold its own funds 1-2 years ago. It used to be that you could get Admiral shares though most brokers that carried Vanguard; now it seems only Investor class shares are available through these third party brokers.
None of this contradicts your statement that TRP, Vanguard, Fidelity, etc. don't pay to play. The brokers offering the funds NTF may be absorbing the cost (my guess; I don't know for certain.)
FFRHX has higher quality exposure than FFHCX. i.e. FFHCX is junkier. That is making the difference in returns.
prinx
edit: I'd like to note that RSIIX, normally a $1Million minimum, is available at Schwab as a for-fee ($76/buy,$0/sell) fund with a $2,500 minimum ($1000 minimum in an IRA). And no short-term holding fees. The Institutional shares (RSIIX) have an expense ratio 0.25% less than RSIVX, making the one-year break even about $30,400.
For the MFO review, see http://www.mutualfundobserver.com/2014/01/riverpark-strategic-income-fund-rsivx-january-2014
And this months commentary ( http://www.mutualfundobserver.com/2014/03/march-1-2014 ) It's half-way down... Search (Ctl-F) for 'RSIVX'
For more info on David Snowball's take on it, see: http://www.mutualfundobserver.com/discuss/discussion/comment/36261/#Comment_36261
[ Long both RPHYX (for my monthly/annual needs) and RSIVX/RSIIX for my near-out years. ]