This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Getting Fatter Yields with Bank Loan Funds

To limit risks, consider one of the tamer bank loan funds. These emphasize bonds rated BB, the highest level in the below-investment grade universe. More aggressive loan funds focus on bonds that are rated B or lower.

The cautious funds have outperformed peers during downturns. A solid choice is Fidelity Floating Rate High Income (FFRHX). During the past five years, the fund returned 4.8% annually, outdoing 91% of peers. While the average fund in the category has only 40% of assets in loans that are rated BB or higher, Fidelity has 59% in the higher ranks. Besides emphasizing higher quality securities, portfolio manager Christine McConnell also prefers loans made to large companies, since they are less likely to default.

The cautious stance helped limit risk during the turmoil of 2008. While the average bank loan fund lost 29.7% for the year, Fidelity dropped 16.5%. McConnell concedes that her fund can lag during rallies when investors bid up prices of shaky securities. But she argues that the steady approach can excel over a full market cycle. "We want to at least match our competitors while taking much less risk," she says.

Another steady performer is Pioneer Floating Rate (FLARX), which has returned 4.4% annually during the past five years, surpassing 77% of peers. The fund has 62% of assets in securities that are rated BB or higher. Besides emphasizing higher-quality issues, portfolio manager Jonathan Sharkey aims to limit risk by holding loans that come with tight covenants. These permit investors to obtain more favorable terms if borrowers fail to perform as planned. "The covenants enable investors to recover more if borrowers run into trouble," says Sharkey.

A fund that excelled in 2008 is RidgeWorth Seix Floating Rate High Income (SFRAX). During the past five years, the fund has returned 4.5% annually, outdoing 83% of peers. Lately portfolio manager George Goudelias has been shifting into BB loans. "Until there is a strong economic recovery, it is prudent to have a little more exposure to the better quality investments," says Goudelias.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $130.42 1.26%
FB $80.41 1.07%
GOOG $555.48 2.13%
TSLA $207.19 1.68%
YHOO $44.45 0.04%


DOW 18,214.42 -10.15 -0.06%
S&P 500 2,110.74 -3.12 -0.15%
NASDAQ 4,987.89 +20.7530 0.42%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs