Fidelity Floating Rate High Income
Floating rate notes make an excellent alternative to traditional fixed income because they contain an adjustable coupon feature that resets every 90 days according to an interest rate index such as Libor. This makes them less susceptible to interest-rate volatility.
However, the key trade-off with senior loans is that you are swapping interest-rate risk for credit risk, as most loans are rated below investment grade.
My favorite floating-rate note mutual fund is the Fidelity Floating Rate High Income (FFRHX) which has a current 30-day SEC yield of 2.83% and is actively managed to capitalize on opportunities in this market. The fund has an expense ratio of 0.71% and currently holds more than $6.8 billion in assets. FFRHX has diversified its holdings across many different sectors, and consistently holds higher-quality notes than many more aggressive strategies.
Michael Fabian is Managing Partner and Chief Investment Officer of Fabian Capital Management. Learn More: 3 Tenets Of Sound Risk Management.