The AdvisorShares Pacific Asset Enhanced Floating Rate ETF (FLRT) has essentially been flat since its February launch, yet that will significantly change if and when rates finally make their upward move, said Bob Boyd, portfolio manager for Pacific Asset Management. 'Should interest rates rise at some point, should the Fed finally get around to removing some of the accommodation that they put in place over the last several years, bank loan funds tend to perform very well in rising rate environments against just about any other asset class,' said Boyd. Boyd said the FLRT combines an active, top-down analysis with bottom-up security analysis. The fund also employs a modest amount of leverage to enhance the overall yield and focuses on the larger, rated issuers within the loan universe. 'The bank loan funds right now are yielding about 5.5% on an index basis and that’s reflective of a selloff that we’ve seen in credit markets in general over the past several months,' said Boyd, adding that investors won’t get an immediate jump in income as rates tick higher, but coupons will gradually increase as the Fed’s tightening cycle moves forward. Boyd also said the asset class has proved less volatile than plain old vanilla bonds, as well as high yield bonds.
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