Floating Rate Bond funds

For income-seeking investors, high-yield bond mutual-funds could be an attractive option. Such funds deal with corporate debt below investment-grade but these bonds are originated by banks rather than the companies themselves. So, it has less credit risk than junk bond funds but has more risk than a typical corporate investment-grade bond. The lien a bank has takes a higher priority in bankruptcy courts than a bond issued by a company itself. So in a bankruptcy, someone holding a corporate note might not get paid off, which does not happen in case of bank loans. These still shouldn't be confused with investment-grade quality bonds and investors should be cautioned that there can be losses due to defaults.

Floating-rate bond funds get their name from the fact that interest rates are reset every 30-90 days. The average interest-rate sensitivity of bank loan funds are about two-months long, which makes them comparable to short-term bond funds in terms of interest rate sensitivity.

Recently, yields on the 10-year Treasury shot through the 5% psychological barrier and last week touched five-year highs. The traditional bond funds are, no doubt, at risk for quite some time in future. On the other hand, bank rate loan funds seem to have placed themselves at a good position. If rates go down, then their income will go down but their NAV (Net Asset Value) won't be much negatively impacted. But, after all, these are bonds and so one shouldn't expect stock-like returns from this investment. Thus, fund expenses are a key to a good long-term success and should be seriously considered before taking the decision of investment.

The following funds could be considered by income-seeking investors. These can also be part of a well-balanced diversified portfolio:
Vanguard High-Yield Corporate Bond Fund (VWEHX) : Yield is around 7%, Expense ratio 0.26%.
Fidelity Floating Rate High Income Fund (FFRHX): Yield is around 6.4%, Expense ratio 0.74%.
Eaton Vance Floating Rate Fund (EVBLX): Yield is about 6.4%. Expense ratio 1.01%.

DRW : WisdomTree's new ETF on Foreign Real Estate

In mid-December, the State Street Global Advisors (State Street), the investment management arm of State Street Corporation launched the SPDR Dow Jones Wilshire International Real Estate Fund (RWX) on the American Stock Exchange. The ETF was billed to be the first such offering designed to track overseas listed real-estate stocks and is the first ETF to monitor performance of publicly traded global real estate securities outside of the U.S.

Since its launching at the end of last year, the fund has attracted more than $750 million in assets. The SPDR fund follows a benchmark that weights about 150 companies by market capitalization.

Today, a new Global REIT ETF called the WisdomTree International Real Estate Fund (DRW) started trading, which, however, emphasizes the biggest dividend payers in developed foreign markets. The expectation is that companies that emphasize paying out strong dividends are by their very nature going to be managed more conservatively

The fund tracks an index made up of some 224 real-estate development and operating companies in 19 developed markets throughout Europe, Asia and the Far East. The benchmark excludes real-estate investment trusts and operators trading on illiquid exchanges and incorporated outside developed countries. WisdomTree also requires companies to have market caps equaling at least $100 million. They must trade at least $100,000 on average per day during a 6-month period.

The largest country weighting in the index goes to Australia, at about 30% of total assets. No. 2 is Hong Kong, at 22%, with Japan at around 11%. Other countries are represented in single-digit percentages. WisdomTree has estimated that its new fund's trailing price-to-earnings ratio is less than 11. The new fund, DRW, charges an annual expense ratio of 0.58%, slightly less 0.60% charged by the StreetTracks fund, RWX.

We expect both these funds to benefit squarely from the developing markets of REIT in other developing countries and may beat US-based REIT ETFs like the iShares Dow Jones U.S. Real Estate Fund (IYR) or the iShares Cohen & Steers Realty Majors Fund (ICF). These are useful tools for diversifying anyone's portfolio to various other countries.