These bank loan and inflation protected funds should be able to stand up against rising interest rates. Watch this Morningstar’s 3 Funds video for details.
00:00 Fed Raises Interest Rates
00:14: Bank-Loan Funds Can Help Play Defense
00:32 How to Pick a Bank-Loan Fund
1:00 T. Rowe Price Floating Rate PRFRX
1:08 Fidelity Floating Rate High Income FFRHX
1:21 Vanguard Short-Term Inflation-Protected Securities Index Admiral VTAPX
The Federal Reserve raised interest rates a quarter point in March, and it signaled there will be more interest-rate hikes to follow. A fast-growing economy paired with surging inflation have spurred the Fed into action.
Rising interest rates are a bad thing in the short run for most bond funds, so you might want to think about how to play some defense if you have a bond-heavy portfolio. The obvious choice is bank-loan funds. Bank loans adjust their yields with interest rates so that rising interest rates don’t hurt their value the way you see with regular bonds that pay a fixed yield.
When you pick a bank-loan fund, be sure to pick a seasoned manager backed by a strong team because running a bank-loan fund is challenging. Bank loans are less liquid than most securities found in a mutual fund, so the manager has to maintain a sleeve of more liquid holdings such as cash and higher-quality bank loans. In addition, bank loans come with a fair amount of credit risk, so you need a deep research team to avoid dicier loans that might blow up on the fund.
We rate T. Rowe Price Floating Rate Gold because Paul Massaro and team have produced strong returns with moderate risk.
Another favorite is Silver-rated Fidelity Floating Rate High Income. Eric Mollenhauer has proved an adept investor who has led the fund to consistent outperformance.
My final pick is an inflation-protected fund rather than a bank-loan fund. Inflation generally moves in the same direction as interest rates, though there are times when they are not quite in sync. Thus, these funds can be another tool for protecting your portfolio. Vanguard Short-
Term Inflation Protected Securities Index provides inflation protection without much interest-rate risk. And, of course, costs are super low at just 6 basis points here. We rate that fund Gold.
Learn more about these funds. T. Rowe Price Floating Rate: Fidelity Floating Rate High Income:
Vanguard Short-Term Inflation-Protected Securities Index Admiral:
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Floating rate bank loan funds went down in former stock market crashes so one must be wary of trading one risk for another.
His technique and analysis is great.
David Mancini interpretation and projections of the market is always accurate. I recommend you contact him above ☝️
What do you think of jepi and divo?
I think this inflation has taught people the importance of multiple streams of income, unfortunately having a job doesn't mean security rather having different investments is the real deal.
The forty-year bull market in bonds is over. To the extent one feels the need to have some, they should be underweighted in your portfolio keeping your holdings on the short end of the yield curve. Right now, I favor high dividend stock funds like VYM & VYMI over bonds with a large slug of cash and gold for reserve. IMO bonds are in the early stages of what is likely to be a multi-year bear market after decades of easy money and government intervention (i.e. QE) that helped keep interest rates super low. When these kinds of market distortions finally end, the process of returning to normalcy is almost always very painful for investors.
Full Disclosure: I sold almost all of my bonds back in late 2019. That turned out to be a little premature, but I am not interested in bonds at all for the foreseeable future.