Dear Mr. Berko: We are in our early 80s and in good health. Four years ago, we had $106,000 in CDs and money market accounts. Today we have $88,000 earning less than 1 percent.
Our balance is lower today because over the past years, like many others in our mobile home community, we've had to take cash from this account for auto insurance, home and auto repairs, some new, expensive medications and higher utility costs.
Most of us read your column, and I've been asked by our group to write and see if you would recommend a short-term money market account or investments that can give us better than the usual low rates that the banks in our community offer. What is your opinion on Fidelity Floating Rate High Income that was suggested by a resident?
JL, Port Charlotte, Fla.
Dear JL: There are many short-term investments yielding 2.5 to 5.5 percent that dot the landscape, but nothing to provide you with the security most folks at your age and stage should have.
And while many folks must take some unnerving risks to improve their cash flow, I don't think that Fidelity Floating Rate High Income (FFRHX-$10.03) should be on your list. FFRHX has been around since 2002, when it began trading at $9.50. Its 3.19 percent yield derives from lower-quality debt securities, repurchase agreements, floating rate loans and weird issues with names like Vnu Inc., Fortescue Semi, Ding Dong Ltd and Freescale Metal.
So be mindful that this portfolio suffered badly in 2008-2009, when its net asset value fell below (gulp) $7.30. Over 80 percent of this $12 billion portfolio is still junk and management makes me uncomfortable even though it has a 4-star rating.
I think both or either of the following issues would be enormously more suitable.
You might consider Osterweis Strategic Income (OSTIX-$12.01), which has been providing yields for investors since coming public at $10 a share in October of 2002. Its manager, Carl Kaufman, has done a yeoman's job of preserving the share price and producing an above-average, long-term return. OSTIX is a 4-star (by Morningstar) multisector bond fund with $3 billion in assets and a 5.31-percent current yield based upon its latest variable, quarterly dividend.
Kaufman runs a portfolio of rather strange high-yield junk bonds (yielding 10 to 12 percent) with names like Horsehead Holdings, Swift Services, Spartan Stores, West, Crack Head, Alere, Lion's Gate, etc., only a few of which remain in position longer than 12 months.
Kaufman also invests in emerging markets, floating rate and convertible debt, preferred issues, municipals and collateralized debts.
There is no front-end sales charge and even with a high annual expense ratio of 0.93 percent, OSTIX has earned a 5-year annual return of a wink over 8.2 percent. At the beginning of this year, OSTIX shares traded at a net asset value of $11.70, and only during the depths of the market slaughter in 2008 did its share value fall below (by just a few pennies) its $10 IPO price. The minimum initial investment is $5,000.
Doubleline Total Return (DLTNX-$11.32), with a button over $40 billion in assets, came public in April 2010 at $10, and the current, very variable monthly dividend yields 5.49 percent. I'm familiar with the fund's manager (Jeffrey Gundlach) from his previous incarnation at TCW. And in the two years he's run DLTNX, his performance (over 9 percent last year) has been quite good. He keeps nearly 17 percent of his portfolio in cash, about 8 percent in Treasury notes and U.S. Agency Securities, 35 percent in low-rated junk and the remaining 40 percent in bank-quality debt.
He keeps his leveraged maturities under four years, has a low 0.74 percent expense ratio and his portfolio turnover is under 16 percent, which is significantly lower than the usual intermediate-term bond fund.
The minimum initial investment in this no-load is $2,000; however, DLTNX will accept $500 investments for IRAs. DLTNX does not have a Morningstar rating because management doesn't feel the need to spend $85,000 for that privilege.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.