Posted by: Lauren Young on August 24, 2007
The WSJ had a story today that money is pouring out of bank loan funds amid troubles in the bank-loan market. Bank loans have been traditional safehavens for investors since because ultra-short holdings are less vulnerable to interest rate moves. But with the credit crunch impacting short-term debt instruments, investors are bailing from bank loan portfolios.
A few weeks ago, I quoted Morris Armstrong, a financial adviser, who likes bank loan funds in a magazine story. His thought is that some of the better bank loan funds are getting hammered unfairly. Other advisers I spoke to in the past week agree.
In case you aren’t comfortable with bank loan funds, there are a few other places to stash cash right now.
Dean Barber, founder of Barber Financial Group in Lenexa, KS, likes online banks, which offer attractive savings rates from 4.75% to more than 5.00%. Plus, there are no fees or minimums, and accounts are FDIC insured. You can find banks with high-yielding accounts at www.bankrate.com
Barber also likes short-term floating-rate bond funds. “They have fallen off a bit, some for no good reason other than the panic in the markets,” Barber says. “These funds offer attractive yields in the 6% range and offer some price appreciation as well - with liquidity in some cases daily, and others at least quarterly.”
With checkwriting features, money market accounts offer a lot of liquidity, but not all money market accounts are created equally. Kevin Brosious, president of Wealth Management Inc. in Allentown, Pa., is a fan of the low-cost Vanguard Prime Money Market fund, which is yielding about 5.1% right now, and holds “safe” investments, with more than half of the fund invested in certificates of deposit. About 20% of the portfolio is invested in commercial paper and another 20% is in U.S. government agencies.
Mitchell Rubin, a New York City financial adviser, likes short-term investment-grade bond funds. “In choosing these funds think low, low, low,” he says. He looks for low expenses (.35% or less), low average effective duration of less than 2.5 years, and a low average maturity of less than three years. He likes the Sentinel Short Maturity Government A fund, and Vanguard Short-Term Treasury. If you want to go the exchange-traded fund route, check out iShares Lehman 1-3 Year Treasury Bond ETF. “It’s a good, liquid, low-risk investment,” says Bradley H. Bofford, a financial adviser in Fairfield, N.J.