A December 9, 2013 article in Fortune Magazine (“The Perils of Floating-Rate Funds”), once again illustrates that, while the allure of these investments may be appealing, their volatility and risks may outweigh their potential rewards which would have serious implications for scores of investors.
Floating-Rate ETFs/Funds are investments whose theoretical “floating” rates of interest rise or fall in tandem with other more established interest rate indicators such as Libor or the federal funds rate. Their typical investment portfolios often consist of leveraged investments in secured and/or unsecured loans, derivatives, structured products, collateralized loan obligations (“CLOs”) and other types of alternative products.
For the twelve (12) month period ended June 30, 2013, assets in floating-rate funds (including both open-end funds are ETFs) are estimated by Morningstar Inc. to have increased by more than 70% to $120.3 billion.
While presented by many financial advisors as an alternative to other more traditional “interest producing” investments, a “principal-protected” investment and/or as a hedge if and when the long-anticipated increase in interest rates finally occurs, as noted in this article, many of these floating-rate ETFs and funds not only have a limited track record by which their performances can be evaluated, but some of their investment portfolios have focused on purchasing concentrated and/or leveraged positions in “speculative grade” debt that could potentially get “hammered” under certain economic scenarios.
If you are an institutional or retail investor and believe you may have been misled regarding an investment in a Floating-Rate ETF/Fund, please contact us. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).
———————————————————————-
A November 15, 2013 article in The Wall Street Journal (“Dangers in ‘Floating Rate’ Funds”), notes that some popular floating-rate funds might have to cut their dividends when interest rates start to rise because of their use of leverage or borrowed money to purchase securities in their portfolios which has been the mechanism that has enabled them to offer enhanced yields.
Floating-Rate ETFs/Funds are investments whose theoretical “floating” rates of interest rise or fall in tandem with other more established interest rate indicators such as Libor or the federal funds rate. Their typical investment portfolios often consist of leveraged investments in secured and/or unsecured loans, derivatives, structured products, collateralized loan obligations (“CLOs”) and other types of alternative products.
For the twelve (12) month period ended June 30, 2013, assets in floating-rate funds (including both open-end funds are ETFs) are estimated by Morningstar Inc. to have increased by more than 70% to $120.3 billion.
While presented by many financial advisors as an alternative to other more traditional “interest producing” investments, a “principal-protected” investment and/or as a hedge if and when the long-anticipated increase in interest rates finally occurs, as noted in this article, the use of leverage by many of these floating-rate ETFs and funds means that, if and when interest rates rise, their cost of borrowing will similarly increase which could have serious implications for scores of investors.
If you are an institutional or retail investor and believe you may have been misled regarding an investment in a Floating-Rate ETF/Fund, please contact us. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).
———————————————————————-
A September 17, 2013 article posted on CNBC.com (“The Bond Market’s Ticking Time Bomb”), notes that despite their recent popularity, floating-rate funds have potential unknown minefields that do not adequately compensate investors for the risks that they are being exposed to.
Floating-Rate ETFs/Funds are investments whose theoretical “floating” rates of interest rise or fall in tandem with other more established interest rate indicators such as Libor or the federal funds rate. Their typical investment portfolios often consist of leveraged investments in secured and/or unsecured loans, derivatives, structured products, collateralized loan obligations (“CLOs”) and other types of alternative products.
For the twelve (12) month period ended June 30, 2013, assets in floating-rate funds (including both open-end funds are ETFs) are estimated by Morningstar Inc. to have increased by more than 70% to $120.3 billion.
While presented by many financial advisors as an alternative to other more traditional “interest producing” investments, a “principal-protected” investment and/or as a hedge if and when the long-anticipated increase in interest rates finally occurs, as noted in this article, “taking on more credit risk to mitigate interest rate risk is not logical” and could have serious implications for scores of investors.
If you are an institutional or retail investor and believe you may have been misled regarding an investment in a Floating-Rate ETF/Fund, please contact us. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).
———————————————————————-
A September 13, 2013 article in The Wall Street Journal (“Floating-Rate Funds: Choose Them Wisely”), notes that while the growing popularity of floating-rate bond funds has led to a boom in the issuance of these short-term securities,” many financial advisors are cautioning investors to be more choosy before committing their financial assets to this category of investments which can involve risky levels of borrowing or leverage.
Floating-Rate ETFs/Funds are investments whose theoretical “floating” rates of interest rise or fall in tandem with other more established interest rate indicators such as Libor or the federal funds rate. Their typical investment portfolios often consist of leveraged investments in secured and/or unsecured loans, derivatives, structured products, collateralized loan obligations (“CLOs”) and other types of alternative products.
For the twelve (12) month period ended June 30, 2013, assets in floating-rate funds (including both open-end funds are ETFs) are estimated by Morningstar Inc. to have increased by more than 70% to $120.3 billion.
While presented by many financial advisors as an alternative to other more traditional “interest producing” investments, a “principal-protected” investment and/or as a hedge if and when the long-anticipated increase in interest rates finally occurs, as noted in this article, “greater market turbulence is likely to leave floating-rate funds that hold below-investment grade bonds more vulnerable to increasing downward pressure on prices” which could have serious implications for scores of investors.
If you are an institutional or retail investor and believe you may have been misled regarding an investment in a Floating-Rate ETF/Fund, please contact us. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).
———————————————————————-
A September 2013 research report issued by The Vanguard Group, Inc. (“A Primer on Floating-Rate Bond Funds”), notes that while floating-rate funds can potentially reduce interest rate sensitivity, this potential advantage is often associated with investors having to incur “significant” credit risk which is much greater than that for money market and short-term bond funds.
Floating-Rate ETFs/Funds are investments whose theoretical “floating” rates of interest rise or fall in tandem with other more established interest rate indicators such as Libor or the federal funds rate. Their typical investment portfolios often consist of leveraged investments in secured and/or unsecured loans, derivatives, structured products, collateralized loan obligations (“CLOs”) and other types of alternative products.
For the twelve (12) month period ended June 30, 2013, assets in floating-rate funds (including both open-end funds are ETFs) are estimated by Morningstar Inc. to have increased by more than 70% to $120.3 billion.
While presented by many financial advisors as an alternative to other more traditional “interest producing” investments, a “principal-protected” investment and/or as a hedge if and when the long-anticipated increase in interest rates finally occurs, as noted in this article, the “returns of floating-rate funds are inherently tied to the considerable credit risk associated with ‘junk’ rated loans” and may have “above-average liquidity risk” – both of which could have serious implications for scores of investors.
If you are an institutional or retail investor and believe you may have been misled regarding an investment in a Floating-Rate ETF/Fund, please contact us. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).