BlackRock Floating Rate Income Strategies Fund (NYSE:FRA) — This floating rate, closed-end fund is rated “4 Star” by Morningstar and could provide a protective hedge for bond holders from a rise in interest rates. The fund should benefit from both a rise in income and price, while straight bond holders will see the prices of their fixed-rate bonds fall.
FRA seeks high current income and preservation of capital by investing at least 80% of its assets in leveraged floating-rate debt securities. In other words, as interest rates rise, this fund’s price will rise with them. Currently, FRA pays a monthly dividend for an annualized $0.924, or 5.61%.
Despite the continuation of monthly purchases of bonds by the Fed, interest rates on the 30-year bond have risen from about 2.82% to 3.2% in just two weeks, and the price of Treasury bonds have fallen.
The rise in rates was caused by Fed officials who have recently been “testing the water” with statements pertaining to the “unwinding” of their purchases. This is meant to gauge the impact on stock and bond markets of raising rates and could be a warning that they are considering rolling back their bond purchase plans as early as this fall.
Thus, bond fund owners should consider selling their bond funds and switching to this floating rate fund that provides protection against a decline in bond prices.