This 11% Yielding Floating Rate Bond Fund Is Strong On Yield

But Heavy On Risk

Every week, we’ll profile a high yield investment fund that typically offers an annualized distribution of 6-10% or more. With the S&P 500 yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.

Fixed income has finally become a legitimate asset class again. Yields are no longer close to zero. The historic bear market due to the Fed’s aggressive rate hiking cycle appears to be over. Today, most investment-grade yields are hovering in the 4-5% range and there’s the potential for share price appreciation if yields continue drifting lower. But the direction of interest rates could realistically head in either direction. If the economy slows, yields are probably heading lower. If inflation reignites, yields are probably headed back up. It’s a level of uncertainty that some bond investors just don’t want to deal with. That’s what makes floating rate notes so appealing. They offer the yield without the duration risk.

The BlackRock Floating Rate Income Trust (BGT) might seem like a logical fund to target in the CEF space, especially considering that it’s currently quoting an 11% distribution rate. But as is the case with many closed-end funds, it’s not that simple. Even though duration risk is essentially eliminated, you’ve still got credit risk, a fluctuating discount to NAV and portfolio leverage to deal with. That doesn’t eliminate it from contention altogether as a consideration for your portfolio, but it’s definitely a case of knowing what you’re buying before you buy it!

Fund Background

BGT’s primary investment objective is to provide a high level of current income with a secondary objective of capital preservation. It invests primarily in global floating & variable rate securities, including senior secured floating rate loans made to corporate and other business entities. The fund also uses leverage to enhance yield and total return potential.