DoubleLine: Safety Play with Floating Rates?

Focus: FUNDS

Robert Carlson Image Robert Carlson Editor, Retirement Watch

We don’t want to own traditional bond funds, because they’re going to lose value as interest rates rise, cautions income expert Robert Carlson, editor of Retirement Watch.

DoubleLine Floating Rate (DBFRX) avoids the risk of rising rates by buying bonds with floating or adjustable interest rates.

The rate paid by the borrower fluctuates with a widely published benchmark rate, such as LIBOR, similar to the way credit card and home equity interest rates work.

The fund still can lose value if the interest rates on the loans it holds don’t reset quickly enough, the issuers aren’t financially stable, or the market for a bond is illiquid.

The fund is focused first on preservation of capital. It does a careful credit analysis of each issuer and, unlike many other floating-rate funds, doesn’t buy debt of low-quality borrowers to increase the fund’s yield.

For example, the fund avoided energy industry loans the last few years because of the decline in the price of oil. The debt owned by the fund is primarily bank loans, or leveraged loans, that were packaged and sold to investors.

The top industries in the fund are healthcare, computers & electronics, leisure goods & activities, food products, and retailers other than food and drug stores.

The duration of the fund is only 0.33 years. About 97% of the holdings are B-rated or better. The recent yield was 3.49%. The fund’s share price jumped 1.05% in the last three months and 5.86% in the last 12 months.

If the $100,000 minimum investment for DBFRX isn’t for you, invest in the fund’s N shares with the ticker DLFRX. The only differences are a lower minimum investment and higher expenses.

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