Investment Memo

Floaters: Why and When

With the Federal Reserve keeping rates on hold at extraordinarily low levels, fixed income money managers have difficult choices to make: buy what the Fed buys and keep duration long in order to capture yield further out the curve, go further out the risk or liquidity curve, or look ahead and realize that rates have nowhere to go but up and position the portfolio accordingly. Institutional investors who choose the latter approach, or are otherwise focused on the short end of the curve, can find capital preservation, liquidity, and incremental total return in bank deposits, money market funds, floating-rate portfolios, and short duration investment grade portfolios. A key component of many of these products is floating-rate securities.