ING Senior Income Fund

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BankFC's picture
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Joined: 2005-05-27

A share at NAV paying 6.71% yield net of expenses?!?  Anybody using this fund, or one similar???

babbling looney's picture
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Joined: 2004-12-02

I've used it.  Also Highland Captial Floating Rate Fund. More leveraged than the ING Senior Income.

aldo63's picture
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Joined: 2006-09-11

yes I use both of them. The highland is the better rated fund and has a leveraged fund also.The ING is the old Pilgrim floating rate fund That was bought by ING.  Pilgrim started this asset class in the late 1980's amd except for the writedown's a few years back, they have done everything they said they would do. My theory is why buy a bond fund when you can do a bond ladder or buy the more liquid preferred stock. I do the floating rate funds because I have no idea which way rates are going to go.

BankFC's picture
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Joined: 2005-05-27

babbling looney wrote:I've used it.  Also Highland Captial Floating Rate Fund. More leveraged than the ING Senior Income.
Do you find that they are they good for CD type customers that are willing to forgo FDIC for some higher yield but still safety of principle???

aldo63's picture
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Joined: 2006-09-11

Call the highland funds and get their marketing material. They are the best at it.I use it as a cd alternative. I do not work at a bank so you probably have to be more careful than me. Highland has a leveraged fund and a non leveraged fund. I have not done the leveraged product. The advantage of the ING or other Prime(senior rate) funds is that it can be exchanged into other funds in the family. There are no other funds in the highland family except floating rates.

rightway's picture
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Joined: 2004-12-02

Rates are dropping.  Why float down with them in leveraged low
quality paper?  Too risky to chase yield this way, especially when
you place it as a CD alternative.  NAV history stable?  Be
very careful here.  Sacrifice a little yield, and go with a high
quality intermediate bond ladder.  Buy bonds with coupons over 6%
to keep your duration low.  Don't fall for the 3.75% coupons
trading at a discount with a higher yield, you will be sorry. 
When GDP drops and rates come down you will be happy with high quality,
high coupons.

NOFX's picture
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Joined: 2006-09-22

I have to agree with Rightway.  Senior Loan / Floating Rate is for a rising rate environment.  You are late to the party buying low quality bank loans now.  I am probably early but I am selling them now and moving into limited term munis. 4% + tax free yield (6% TEY in the highest bracket). 
 A lot of widows and orphans took $ out of CDs over the past few years and into Senior Loan funds.  Whith rates possibly ticking down a bit here, the possibility of inflation hurting some of the junk issuers, leverage, monthly / quarterly tenders, a lot of these CD clients are going to sudddenly realize that they were taking significant risk.  Couple that with a quarterly tender - everyone heading for the exit at the same time, grandma is going to lose some principal.  Not to mention what happens when grandma tenders all her shares and the fund only lets her out of a % of what she wants (you might want to revisit what a tender really means).   Senior Loan might still be good for another couple of quarters or so - my clients are questioning wht we sold - but I'd rather be a couple quarters early than a day late. 

aldo63's picture
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Joined: 2006-09-11

I think floating rates are good for all enviorments. as for being low quality, they are backed up to 147% of the underlying companies asset value according to the highland funds. Again, I have used these for 17 years and the only problem was when they did a "mark to the market" on the loan about 5 years ago. Since then the senior loan maket is significantly more liquid and that should not be a problem again. Do not buy the closed end funds in a rising enviorment, they usually drop to a discount. Here are the returns
time    floating rate     multisector bonds&nbs p;   
1year    5.42         &n bsp;     1.85
3yr       5.75         &n bsp;      5.67
5yr        4.99         &n bsp;     7.63
that is from morningstar on the asset classes. This also included the write downs of 2001, 2002 for the senior loan. The senior loans also did much better that the short term bond funds. The beta is also lower on the floating rates. I may be wrong, but I cannot bet on longer bonds at these levels even if history says I should. 
 I am just saying this is a way to get paid, unlike cd or short treasuries, and deliver consitant returns .

Lex123's picture
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Joined: 2006-10-26

Check the credit ratings. This is JUNK, JUNK, JUNK. If you don't think JUNK is risky, you're just stupid. There is a reason something carries a JUNK rating. Hey, let's LEVER up some JUNK and sell it as a CD! What a concept. And the interest rate is better. Wow, how do they do it!  It's like magic...until the s**t hits the fan and the credit spreads blow out. Then you better start looking for a new job.
JUNK!

aldo63's picture
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Joined: 2006-09-11

I have used these funds since 1990 when I first bought the MS prime fund. A good fund I might add( i never say anything positive about MS).Have you been in the business that long? If you have, did you really look at these. They are not CD's but this is not the S&L crisis waiting to happen. The average credit quality is in the speculative BB and B status. I still buy GM bonds with a BB rating. I also buy REIT preferreds with a BB rating. I have also purchased NR paper. If they were going to blow up don't you think it would have happened in the last 5 years.
Basically the company has to fold overnight. Then they have to default on the preferreds, bonds, and then the short term paper. The fund can sell off the assets of the company and recoup the money. Please check into the recovery rates, you will be very surprised. Do they sometimes not get it, yes but not 20 cents on the dollar like a junk bond. They get much more
Please learn about an investment before you comment on it. Call the Highland funds and ask them the same questions. I think you will look at this differently. CD alternative is just a term I use. I explain all the risk of these investments to my clients and show them exactly how they work. I still stand by my statement that I will buy this investment before I buy bond "funds".
 
 

NOFX's picture
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Joined: 2006-09-22

The Highland Capital Fund is the old Columbia Fund that Columbia had to sell off because they are so big in senior loans.  Beware - the 5* rating was earned by a completely different management team.
Aldo - I would say that the issue is not the recovery rate - typically 70% to 100%.  The issue is that a loan (although secured) trades to a significant discount if it is in foreclosure.  The collateral is typically something that takes time to liquidate - corporate real estate etc. - not to mention that the bank is going to try to work the loan out without foreclosing.  Yes, the lending institution is pretty well covered against the risk of loss because they don't need the liquidity.  My concern (and why I have been liquidating approx $5mm in senior loan funds from Eaton Vance, Oppenheimer, Van Kampen, ING and Highland) is the yield investor who sees the declining yield and NAV and starts to get upset.  Then they cant get out for another couple of months! 
A couple of down NAV statements and none of your clients will recall that you disclosed all the risk.  All they will remember is that you told them that they were 150% collatoralized (sp) so they couldn't lose money.  The easy money has been made here.  I'm sure it will be fine for a couple more quarters (admittedly, I am selling early)
The other thing is that these funds all own the same names (within reason)  a default in one portfolio will be in most of the other portfolios as well.  Way too many small investors own these funds as CD alternatives and they have no idea how much risk is in them.

rightway's picture
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Joined: 2004-12-02

Why not give up a small amount of yield to have more security, no risk
of having your income float down with the coming interest rate declines
(or increases...do a ladder), and the liquidity of knowing your good
paper will likely be able to be sold at a profit later?  Simple
liability management.  Focus on quality and duration!

troll's picture
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Joined: 2004-11-29

Well I've met one of the portfolio managers from Highland and I can tell you they are the real deal....not just some schmos who bought a portfolio from Columbia.Having said that, I've owned a closed end fund that they manage and after having picked it up at a nice discount my clients have made about 25% in the last 16 months.  Not bad.  But some of the concerns ya'll hav raised about credit quality and "floating down" with lower rates have got me thinking it's time to say BYE BYE!Well I'll make a few bucks blowing out of all those positions, and take some nice profits for clients as well.  Not a bad deal.  Just put the $ in a GNMA UIT and wait for the next 'easy money' opportunity to come along to pick up something cheap.

aldo63's picture
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Joined: 2006-09-11

nofx
 
i hope there is no problem, becuase I still believe in them. you are right, a client will turn on you anytime if they lose money. 
 We live with this risk everyday.
 

troll's picture
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Joined: 2004-11-29

aldo63 wrote:nofx
 
i hope there is no problem, becuase I still believe in them. you are right, a client will turn on you anytime if they lose money. 
 We live with this risk everyday.
 There is no room for "hope" in this business.

rightway's picture
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Joined: 2004-12-02

aldo63 wrote:nofx
 
i hope there is no problem, becuase I still believe in them. you are
right, a client will turn on you anytime if they lose money. 
 We live with this risk everyday.
 

The CD Buyer who is going into something under the assumption of a nice
"alternative" to the safety a CD provides should not be exposed to "the
risk WE live with every day".  We are paid to know more than they
do...thats why we are paid. 

troll's picture
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Joined: 2004-11-29

rightway wrote:
aldo63 wrote:nofx
 
i hope there is no problem, becuase I still believe in them. you are
right, a client will turn on you anytime if they lose money. 
 We live with this risk everyday.
 

The CD Buyer who is going into something under the assumption of a nice
"alternative" to the safety a CD provides should not be exposed to "the
risk WE live with every day".  We are paid to know more than they
do...thats why we are paid. 
very well said rightway!

Lex123's picture
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Joined: 2006-10-26

aldo63 wrote:
Have you been in the business that long? If you have, did you really look at these. They are not CD's but this is not the S&L crisis waiting to happen. The average credit quality is in the speculative BB and B status. I still buy GM bonds with a BB rating. I also buy REIT preferreds with a BB rating. I have also purchased NR paper.
I've been in the business 10 years and I can guarantee you ONE thing: If you buy Junk and NR paper, you will get burned.  You will lose clients money and you will lose clients (if not your job.) Just because it hasn't happened yet, doesn't mean it won't. The guys at LTCM thought they were pretty smart and you remember how that turned out. I don't know you, but I'd say it's a fair bet that you're not as smart as the guys at LTCM.  
 

AllREIT's picture
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Joined: 2006-12-16

NOFX wrote:I have to agree with Rightway.  Senior Loan / Floating
Rate is for a rising rate environment.  You are late to the party
buying low quality bank loans now.  I am probably early but I am
selling them now and moving into limited term munis. 4% + tax free
yield (6% TEY in the highest bracket).
These funds could take some hits if junk defaults go up from the
current absurdly low rates. Probably time to explain this to clients
and shift to short duration bond fund.

If people insist on staying in a floating fund, PIMCO has an investment grade floater (Average credit quality is A-).

Quote:Couple that with a quarterly tender - everyone heading for
the exit at the same time, grandma is going to lose some
principal.

Not all the senior loan funds lack daily liquidity. That dates back to when senior loans/floating rate notes were illiquid.

Quote:Senior Loan might still be good for another couple of
quarters or so - my clients are questioning wht we sold - but I'd
rather be a couple quarters early than a day late. 

So true.

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