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Members Mailbag: Variable Rate, Fixed-Income, Closed-End Funds

From time to time, we like to share investment-related questions/ideas from our readers. Today's "Members Mailbag" comes from member Ken W.  Ken asks:

Given rising interest rates, albeit slowly, are you considering any floating rate funds/ETFs such as FRA, BGX, BX, JFR for your Income Equity Portfolio?

Thanks for that question and for those ideas Ken. Here are our thoughts...

We do consider floating rate funds from time to time, and we understand they make sense for some investors, especially those interested in generating income while also hedging against some of the risks of rising interest rates. We don’t have any immediate plans to add floating rate funds to the Income Equity Portfolio mainly because they are mostly bonds (not equities/stocks), and we believe they miss out on some of the long-term capital appreciation potential of the stock market (i.e. sometimes the trade-off for having higher interest rates and less exposure to inflation risks, is that you miss out on some of the long-term capital appreciation potential).

However, we did review the variable rate funds you mentioned (i.e. FRA, BGX and JRF), and of those three we like FRA the best because it trades at a discount to its NAV (and that discount is reasonable compared to its own long-term averages), plus it has lower fees, and it has a little less leverage (i.e. it uses less borrowed money).

For your reference, there is a lot of good information on all three of these funds at the following Morningstar links:

Also, for your reference, we did a brief write-up yesterday on the PowerShares Variable Rate Preferred Portfolio (VRP) which yields 4.8% now, but the yield will rise as interest rates rise. We like this portfolio because it’s an ETF instead of a closed-end fund and that results in a lower management fee and no leverage. You can read our members-only report here: 

Also, you can read more details on the PowerShares website at this link: VRP

Since the funds Ken listed are closed-end funds, you can reference more information about what we look for in a good closed-end fund here:

And as a reminder, we do currently own a several closed-end funds within our Income Equity Strategy:


And you can view all of our current Blue Harbinger Holdings here.

Thanks Ken for that question. Please feel free to send us more anytime.

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