My concern with the traditional bond funds is rising interest rates. Because DoubleLine Floating Rate (DBFRX) holds securities with floating interest rates instead of fixed rates, the securities generally don’t lose value when interest rates rise, notes Bob Carlson, editor of Retirement Watch.
For example, DBLTX returned 2.59% in the last 12 months while DBFRX returned 3.93%. Interest rates rose sharply starting in late 2017, and the advantage of floating rates really kicked in over the last three months. DBLTX lost 1.02% while DBFRX returned 1.09%.
I don’t expect much appreciation in DBFRX going forward. But the yield is 4.35%, and we should be able to earn that yield with little or no decline in principal. Firms that issue floating-rate securities tend to be those with lower credit ratings, so I’ll recommend selling when I see weakness in the economy.
We’re holding on to DoubleLine Income Solutions (DSL); I think of this closed-end fund as the best of DoubleLine. It has been positioned to protect investors against rising interest rates for some time by owning primarily emerging market bonds and high yield bonds. But these have higher risk and less potential growth now.
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As a closed-end fund, DSL’s share price is independent of its net asset value. Rising interest rates have made investors sell the fund, though the underlying portfolio is holding up.
Most bond funds lost value in recent months. DSL’s total return is up 0.61% in the last four weeks on a share price basis and 0.18% for the year to date. But its net asset value return is 0.95% over the last month and 0.28% for the year to date.
The discount to net asset value has been increasing and now is at 6.69%, which is above the six-month average but below the three-year average. The fund has been good to us and held up better than most bond funds. I recommend holding for now.
