This Fund Should Help Bondholders Sleep Better at Night

by Sam Collins | June 21, 2013 1:10 am

BlackRock Floating Rate Income Strategies Fund (FRA[1]) — This floating rate, closed-end fund is rated “4 Star” by Morningstar and could provide a protective hedge for bondholders from a rise in interest rates. The fund should benefit from both a rise in income and price, while straight bondholders 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 6%.

The fund fell from its 200-day moving average during trading Thursday, but in the final 10 minutes, it rallied from $15.08 to its close at $15.37, accompanied by high upside volume. This is the third time in a year that FRA has spiked down on high volume. The prior two spikes reversed, and within several months the fund achieved a new high.

FRA is in an intermediate and long-term bull market. The recent pullback appears to be an excellent opportunity to obtain a fund that should increase its payout and appreciate as interest rates rise.

FRA Chart
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Chart Key[2]

  1. FRA:
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