June 2018 Newsletter to Clients

Enjoy this month’s edition that features a helpful reminder about information security and a discussion about BlackRock Floating Rate Income Trust.

A Compliance Reminder – Information Security and Identity Theft need to remain top priorities for consumers. We encourage everyone to NEVER RESPOND to emails asking for confirmation of user identification names or passwords. Moneywatch annually updates its Information Security Program and Identity Theft Prevention Program, never hesitate to reach us for a copy or with any security concerns.

Be aware of Spoof Emails! If an email appears to be from someone in your contact list but if you look more closely the actual email address is completely different. Delete these emails!

BGT Discussion - As we have discussed in previous newsletters, each of our portfolios is structured in a way to support our long-term goals. For instance, those in their 30’s will obviously have a more aggressive mixture of investments than someone who is already retired and needs regular income from their investments. Having said that, virtually every Moneywatch client owns investments in the Long-Term Income asset class within their portfolio. Most of you own BlackRock Floating Rate Income Trust (BGT) and many of you also own its sister fund, BlackRock Floating Rate Income (FRA), both within that asset class.

BGT is a fund with an objective of providing a high level of current income. It does this by investing in a portfolio of floating rate and variable rate securities. In layman’s terms, BGT invests in bank loans, primarily loans made to companies such as First Data Corporation and CenturyLink, just to name two.

We often meet with representatives of the funds in which we invest your money. Our team met with BGT representatives via phone last month. The purpose of the call was for Moneywatch to understand better when BGT would increase its dividend and provide more income to you. Our question stems from the fact that short-term interest rates have been rising for the last couple of years but BGT’s monthly distributions have not.

While BGT could not, of course, commit to us when that will happen we were encouraged by the news that the fund has been “over-earning” its distributions. In other words, the fund has been retaining earnings that amount to more than what it is paying out. They also explained they have been unable to raise their loan rates since they did not drop them as much as interest rates sank after the Great Recession. They also explained they are fairly conservative in their loan policies and, as a result, saw default rates of only 5% during the recession in 2008 while the bank loan fund industry saw defaults of about 13%.

All this is to say that, while monthly distributions have not increased the way Moneywatch would like yet, BGT’s distributions also didn’t sink as far as many funds did during the recession because they didn’t lower rates as far or have to write off as many loans because of defaults.

We are still encouraged that BGT is fulfilling its designated role in your portfolios. In fact, the current yield, or payout per share, is over 5%. That level of income in this low interest rate environment is still quite good and we are hopeful BGT will be able to raise their monthly distribution in the future.

Thank you for your continuing confidence.

Past performance is no guarantee of future results. The opinions expressed are those of Moneywatch Advisors, Inc. and are no guarantee of the future performance of any particular fund. This information is for educational purposes only and is not intended as investment advice. Please consult your financial advisor for more detailed information or for advice regarding your individual situation.​​