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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Jurgis Bekepuris who wrote (40568)12/14/2010 5:58:53 AM
From: Wallace Rivers  Read Replies (1) | Respond to of 78678
 
It's been a while since I've done a lot of DD on this asset class.
As I understand these products, most invest in senior loans of a very short maturity. Thus, the risk implied in leverage is lessened, as the portfolio resets frequently at prevailing interest rates.
Another poster mentioned company specific risk, and examining credit quality. Each fund is diversified, which mitigates risk to some degree. As these loans are "senior", they stand at or near the front of the line in the event a company were to have financial duress.



To: Jurgis Bekepuris who wrote (40568)12/14/2010 6:12:23 PM
From: MCsweet  Read Replies (1) | Respond to of 78678
 
Senior loan funds like FRA and VVR benefit from rising short rates, since they are long more floating rate exposure than they are exposed to on the borrowing side (although there may be a reset lag).

FFC and FLC are preferred funds that definitely would be hurt by rising short rates.

MC


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