Month: June 2020

When interest rates are as low as they are today, it is common for fixed-income investors to seek higher yields. One option to consider: mutual funds that hold floating-rate loans.

Floating-rate loans have “floating” interest rates, which simply means the rates are variable. The rates adjust periodically (usually every 30 to 90 days) based on changes in widely accepted reference rates, such as the London Inter-Bank Offered Rate, commonly referred to as LIBOR.

Floating-rate loans offer investors several potential benefits.

First, floating-rate loans offer a measure of protection from interest rate risk, which is the risk that your investments will yield less when interest rates are low. That is because floating-rate loans generally pay interest rates higher than many other fixed-income investments.

Second, floating-rate loans are typically well secured. They sit at the top of a company’s capital structure. This has led historically to higher recovery rates in the event of default.

Lastly, floating-rate loans may offer the potential for diversification: they have tended to have low correlations to other major asset classes.

That said, there are risks to investing in floating-rate loans, as there are with all investments. Because they generally invest in low-quality credit, floating-rate loans should be considered somewhat risky. Additionally, floating-rate funds may not have stable net asset values, which makes some investors uncomfortable.

If you think the pros outweigh the cons, however, some mutual funds buy floating-rate loans, thereby giving investors the opportunity to share in the potential earnings.

Contact us today if you are interested in floating-rate loans.

Many people feel as if they have to choose between their values and their money, but that is not necessarily true. If you want to do well financially and do good in the world, you may want to investigate socially responsible investment funds.

At their most basic level, socially responsible investment funds use screens to exclude or include companies based on certain criteria. For example, a mutual fund might exclude stocks of companies that manufacture or sell weapons, tobacco, or alcohol. Alternately, a mutual fund might seek out companies involved in climate change mitigation, such as solar panel manufacturers.

But socially responsible investing can be even more robust. Some socially responsible investment managers conduct comprehensive reviews of companies to understand their operations and social impact, often traveling around the world to meet with management teams.

You may have heard of environmental, social, and governance (ESG) factors. These are often used to measure how a company stewards the natural environment, manages relationships with its employees and governs things like its executive pay. Third parties sometimes provide these ratings, but more and more managers have their own ESG teams and do their own research.

Good ESG factors have been linked to good performance. Companies prioritizing ESG factors have been shown to generate superior long-term financial performance across metrics that include sales growth, return on equity, and return on invested capital, among others, according to The Motley Fool.

If you want to invest in a socially responsible fund, you should check to ensure that the strategy and allocation match your financial goals. We can help you understand the options available to you and ensure they meet all of your needs, both personal and financial.

Call us today to learn more about socially responsible investing.