November 2014 Newsletter to Clients

Enjoy this month’s edition which features an update on BlackRock income funds from Bob Bova and a reminder about open enrollment for benefit plans.

From the desk of Bob Bova…

BlackRock Floating Rate Income Trust’s (BGT) and BlackRock Floating Rate Income Strategies Fund’s (FRA) primary investment objective is to provide a high level of current income. Their secondary investment objective is to seek preservation of capital. These funds seek to achieve their investment objectives by investing primarily, under normal conditions, at least 80% of its assets in variable rate instruments of US and non-US issuers. They also include a substantial portion of its assets in global variable rate securities and senior secured floating rate loans made to corporate and other business entities. Under normal conditions, the funds expect that the average effective duration of its portfolio will be no more than 1.5 years. The funds may invest directly in such securities or synthetically through the use of derivatives.

Morningstar Mutual Fund Rating service awards both BGT and FRA a four-star (out of five) rating. This overall rating for these funds is derived from a weighted-average of the performance figures associated with its 3, 5, 10-year (if applicable) Morningstar Rating metrics. Both funds are currently selling at a price which is nearly 10% below net asset value, have allocated over 95% of invested assets to short term loans (bank loan participations) and have about 90% invested in North America.

During the past five years interest rates have been held down supposedly to spur economic activity resulting in a 50% decline in the income generated by these funds. It’s no wonder the price of these funds have declined the way they have from prior to the financial crisis in 2008-2009. But, these funds currently yield about 6% which compares favorably to other short term rates, such as 1.1% for one-year or 2.3% for a five-year certificate of deposit.

On a personal note, I have over $1-million invested in BlackRock with borrowed money costing about 3.3% ($33,000), the bulk of which is at a fixed rate, but earning about $64,000, using other people’s money nets about $31,000 annually. I am unhappy with the recent price decline but I am not fretting, since cash flow is my primary objective. The Fed cannot keep interest rates low forever and now it is predicting that rates may begin to rise around mid-next year. When rates rise, distributions will rise. When I began to buy BlackRock at $17 it was paying 12.5 cents per share and the Prime Rate was 7.75% versus 3% currently.

From the desk of Ramsey Bova…

Did you know that we can help with open enrollment for employer benefit plans? Contact us during your open enrollment period for a review of your life or disability insurance, retirement plan investment options, and other benefits in your existing plans.

Thanks 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.