It doesn’t take a rocket scientist to see that the U.S. economy is in the dumps. As a consequence, people are trying to find new and different ways to save, protect and invest their money. Recently, I wrote about investing in gold and exchange traded funds. This time I want to introduce you to corporate loan closed-end funds and currency loan closed-end funds.
Corporate loan closed-end funds are similar to mutual funds but are bought and sold like stocks. And based on the market climate they often trade at prices that are different from the value of their holdings, many times at a discount. I repeat, they are similar to mutual funds but they trade in real time on an exchange and have a fixed number of shares outstanding. For the investor, this means that one can still find opportunity regardless of selling and purchasing trends. To be more exact, when discounts get extreme due to short-term investors selling off, one can get these same shares and the discounts narrow. This is where some opportunity may occur. Now to be truthful, as in all investment plays, it is not 100 percent guaranteed and doesn’t work all the time, but it is something to consider.
Another investment area to consider is currency closed-end funds. These funds also trade at slight discounts to their asset value, and consequently, offer another opportunity in this new age of fixed income turbulence and of crashing and this willy-nilly distribution of TARP and stimulus loot.
Both of these funds, in an environment that lacks absent the long-term interest rate and what used to be considered “sure” embedded in fixed-rate bonds, often outperform high-yield bonds as pure credit investments. This may mean that corporate loans, which are secured and have adjustable rates, provide a higher and more dependable return as a credit instrument than some high-yield bonds.
So the next time you meet with your broker, ask him or her to discuss how these types of funds can add stability and value to your investment portfolio. –torrance stephens, ph.d.
