Talking Sharks and Floating Rate Income Funds
Today there is an annoying shark on TV called Kevin O'Leary ... his hair looks like Curly's from The Three Stooges. Unfortunately, he's all over the place on CBC, on CFRB 1010 for the morning and afternoon drive.
Both Jabberjaw and O'Leary are two-dimensional characters with some entertainment value but not always a whole lot of substance. One exception may be the O'Leary Funds Floating Rate Income Fund. It is described as a:
"a diversified portfolio comprised of senior secured floating rate loans, floating rate notes and other debt obligations of investment and non-investment grade global issuers"
The fund intends to generate income while protecting capital from the impact of increasing interest rates. It does this by keeping a short portfolio duration (under one year), which limits impact when (not if) rates increase. The target distribution is almost 5.9%.
Fund companies must smell blood and are now circling investors and pushing FRN's (floating rate notes). Dynamic Funds is offering a similar fund and ING will be soon. O'Leary Funds and others are squid-jiggin' investors by understating the risk of FRN's - the BMO FRN fund has not recovered from its credit crisis losses. So look before you leap into these murky waters!