Opinions
Larry Berman CFA, CMT, CTA
Mackenzie Floating Rate Income ETF
MFT-T
BUY
Apr 30, 2018
Stock price when the opinion was issued
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A floating rate note is an instrument issued by a corporation where the coupon adjusts each quarter. It is not a money market replacement because there is some credit risk, although not high. It is money market-like because it is linked to short term interest rates. He has shifted a lot of money into floating rate notes because he thinks interest rates will go higher. He has no trouble putting money in. FLOT-N is one he uses in the US.
In his fixed income allocation. One of the better-performing fixed income assets out there. Invests in non-investment-grade, floating-rate, short-term bonds. Half in US, 25% in Canada, rest international. 67 bps. Not a lot of duration risk. Can continue to do well as long as economy doesn't collapse. Yield is 9%.
Not really a place to "park" money. Part of a dedicated fixed-income strategy. Better returns than money market.
With rates coming down in the future, we would be cautionary to say that a yield this high will be sustained, especially given MFT's floating rate focus. As rates come down, interest payments will come down as well which should lower the yield overtime. However, if the price of the fund declines by a greater proportion, yield may look attractive. The share price will likely trade close to NAV which will depend on market conditions.
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Has done extremely well over the past year, total return is up ~8.6%, though share price has come off. Floating-rate strategy to higher-yielding corporate issues, mainly US. Better return than most bond indices, as they're usually long term. Performs well in almost any interest rate environment. Very nice yield of 9-10%.
He added it to clients' portfolios a couple of weeks ago and is looking for it to reach yield. He has paired this with another ETF on the other side with high quality and a bit lower quality, mostly B bonds and mostly in the U.S. Small cap and mid cap companies in the U.S. could be taken out by large caps.
Floating rate notes give you an income payment adjusted to the change in short term interest rates. They go up in a rising rate environment, but there are not a lot of capital gains in this. He likes these notes in this environment, but more so in the US.