Floating rate funds

3 replies [Last post]
Gordon Gekko's picture
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Joined: 2007-07-08

So who owns these and what is your plan now that they are in a downtrend on NAV?

rightway's picture
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Joined: 2004-12-02

The whole benefit of those things were that when rates rise...you go up
with it.  I never really bought into them ever sonce they went
through the marking to market challenge about 10 years ago.  Here
now we see that investing in sloppy credit can have its challenges and,
in my opinion, these funds are sold wrong and should be avoided. 
Maybe I am old fashioned, but I buy bonds, collect the coupon, and
reinvest when I get my money back...hedging interest rate and
reinvestment risk with a simple ladder or barbell.  

AllREIT's picture
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Joined: 2006-12-16

Gordon Gekko wrote:So who owns these and what is your plan now that they are in a downtrend on NAV?

Roll them into variable annuities.

More seriously, I've been seeing alot of these hiding around in
people'ss portfolio, and they are a great topic to start creating FUD
with.

1) They are junk rated.
2) If interest rates fall, coupon payments will drop.
3) If interest rates rise, the obligor gets crushed.
4) Loans are continiously callable, so you have reinvestment issues very similar to RMBS

Ultimately I tell clients that it is impossible to take more cash out
of a company that the company itself can safely produce. And that is
exactly what junk bonds are.

snaggletooth's picture
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Joined: 2007-07-13

AllREIT wrote: Gordon Gekko wrote:So who owns these and what is your plan now that they are in a downtrend on NAV?Roll them into variable annuities. More seriously, I've been seeing alot of these hiding around in people'ss portfolio, and they are a great topic to start creating FUD with. 1) They are junk rated.2) If interest rates fall, coupon payments will drop.3) If interest rates rise, the obligor gets crushed. 4) Loans are continiously callable, so you have reinvestment issues very similar to RMBSUltimately I tell clients that it is impossible to take more cash out of a company that the company itself can safely produce. And that is exactly what junk bonds are.
But everyone wanted Revlon and Fruit of the Loom bonds, didn't they?!?!

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