money person balance

Content provided by Marc Pfeffer, CLS Senior Portfolio Manager

Now that the Federal Reserve has begun to taper, investors are looking for ways to invest in fixed income without losing money.  That is nearly impossible, unless you are in a money market fund which yields next to nothing. However, there are several fixed income investments that have done well in 2013, and may provide a level of income that can offset small price increases.  Positioning fixed income in portfolios for higher rates entails several key factors:

1) Managing duration

2) Maximize reinvestment income

3) Diversify sources of yield

For example, in CLS’s portfolios we have exposure to PowerShares Senior Loan Port (BKLN).  This ETF is based on the Leverage Loan 100 index and investors potentially derive the benefit of high yields with protection against rising interest rates.  A second example is iShares Floating Rate Bond ETF (FLOT) – which tracks the Barclays U.S. Floating Rate Note less than 5-years Index.  The fund has duration under 2 years and charges a low expense ratio.

The bottom line is that rates are almost certain to move higher at some point in the not-too-distant future, but there are ways to protect yourself. Just make sure expectations are reasonable.

Fixed Income is an investment style designed to return income on a periodic basis.  While more conservative than many investment strategies, there are risks associated with fixed income investing, notably regarding interest rates, credit default, inflation, liquidity risks, and prepayment risks.
An ETF is a type of investment company whose investment objective is to achieve the same return as a particular market index.  An ETF is similar to an index fund in that it will primarily invest in the securities of companies that are included in a selected market index.  An ETF will invest in either all of the securities or a representative sample of the securities included in the index.
The S&P /LSTA U.S. Leveraged Loan 100 Index is an index tracking the performance of the largest facilities in the leveraged loan market.  An index is an unmanaged group of stocks considered to be representative of different segments of the stock market in general.  You cannot invest directly in an index.
The Barclay’s Capital U.S. Floating Rate Note < 5 Years Index is an index measuring the performance of U.S. dollar-denominated, investment grade floating rate notes.  Securities in the index have a remaining maturity of greater than or equal to one month and less than five years.

2461-CLS-12/23/2013