Bank-Loan Funds: A Risky Reach for Yield

With interest rates so low, individual investors have been piling into bank-loan funds, taking on more risk as they seek higher yields and a hedge against inflation. In April $729 million flowed into U.S. mutual funds that invest in the corporate debt, also known as floating-rate loans, according to preliminary data from EPFR Global, a research firm. This year investors added a net $1 billion to the funds through May 2, after pouring in $6.4 billion last year.

The funds buy speculative-grade loans used to finance buyouts. Because their rates are variable, the loans are less vulnerable than fixed-rate investments to increases in interest rates. And they usually offer better yields than high-quality bonds. “Where else can you get 4 percent to 5 percent with zero duration?” says Christopher Remington, institutional portfolio manager for Eaton Vance (EV), which oversees about $24.7 billion in floating-rate loans for individual and institutional investors. Duration is a measure of interest-rate sensitivity.

For Maury Fertig, chief investment officer of money manager Relative Value Partners, bank loans are “a sweet spot right now.” The loans have a chance to gain value as the economic recovery continues, he says, “and in the event of higher rates, I’m not going to lose a tremendous amount of principal.” Bank loans account for about 15 percent of his clients’ fixed-income assets.

The advantages come with significant risks. In times of economic stress, the funds can perform worse than junk bonds. Bank-loan mutual funds lost about 30 percent during 2008, compared with about a 26 percent decline for funds that invested in high-yield bonds, according to data from Morningstar (MORN). “People are so starved for current yield that I think it’s pushing them into spots they otherwise wouldn’t go,” says Mark Balasa, chief investment officer of Balasa Dinverno Foltz, a wealth management firm. “In 2008 these things got shelled.”

The Financial Industry Regulatory Authority in July issued an alert warning investors about purchasing complex products, including floating-rate loan funds. “Funds that invest in floating-rate loans may be marketed as products that are less vulnerable to interest-rate fluctuations and offer inflation protection, when in fact the underlying loans held in the fund are subject to significant credit, valuation, and liquidity risk,” Finra stated.

Investors may not realize that floating-rate loans tend to move more in step with stocks than they do with bonds, says Douglas Anderson, a director with Harris MyCFO, a unit of Bank of Montreal (BMO). “The more you take out of traditional high-quality fixed income, the more exposure you’ll have in the event of a significant market correction,” he says.

Another risk investors may overlook: Buyout firms’ practice of piling debt on to companies they own to extract payouts may reduce the creditworthiness of borrowers and make defaults more likely. SeaWorld Parks & Entertainment, the Orlando-based amusement park operator and home of Shamu, the killer whale, was downgraded by Standard & Poor’s (MHP) after getting a $500 million loan in March to fund a dividend to owner Blackstone Group (BX). S&P lowered SeaWorld’s credit rating to B+, four levels below investment grade, from BB-, because of the increase in leverage following the distribution. “When everyone is concerned about yield and return and growth, rather than risk,” says Joseph Duran, chief executive officer of investment adviser United Capital, “it invariably leads to bad outcomes.”

The bottom line: Investors have poured more than $7 billion into bank-loan mutual funds since the beginning of 2011. Many may not grasp the risks.

Idzelis is a reporter for Bloomberg News in New York. Ody is a reporter for Bloomberg News in New York.

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Future JPMorgan Dividends May Yield Over 4%

Zynga IPO Outlook July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at

July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at YCMNet Advisors, Bob Rice, general managing partner at Tangent Capital Partners LLC, Paul Martino, managing director at Bullpen Capital, and Paul Bard, director of research at Renaissance Capital LLC, talk about Zynga Inc.'s plan to raise $1 billion in an initial public offering and the outlook for the company. (Excerpts. Source: Bloomberg)

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High Yield Investing

What does High Yield Really Mean?

High yield investing has taken on a totally new dimension since the introduction of the internet and the basic personal computer. In the United States, a high yield account is considered to be anything over 5% monthly. Of curse as the old adage goes, the higher the yield the larger the risk. This is true. You can not expect to earn more than an average percentage rate with less risk. It just doesn't make sense.

When discussing high yield interest accounts, are we talking about a savings account that produces a 5.4% annual percentage return? Well, yes. And no. It depends on who you are and what you consider to be possibilities and realistic.

By now most of us have heard about investment programs that claim to be able to produce ridiculously high returns. Traditional investors cringes when they hear terms like 25% per month for one year plus the return of principle, and they nearly quiver when they hear claims of 300% in eight weeks. Certainly these high yield investment programs must be scams. How can it be possible to produce such returns in such a short amount of time? And why isn't everyone out there doing this if it can really happen? If these high yield investments hold any water then in just five short years we could wipe out poverty and homelessness and no child would ever go to bed hungry or sick again!

Are High Yield Investments Scams?

Believe it or not this question is not a simple yes or no response. It can't be. The short and safe answer would be yes, they are scams. However, it is important to understand what they are and why they have not all been shut down by the government if they are nothing more than a way to steal your money.

High yield investment programs are not a place to try to earn an income. They are extremely volatile and unpredictable. People can and do make money from them, and sometimes it's a significant amount of money. But don't get excited and start rushing out to re-mortgage your house just yet.

Read every single disclaimer on a high yield investment program website and they will all say the exact same thing. High yield investing comes with the risk of losing money. Never invest more than you can stand to lose. Why? Because every high yield investment program will eventually crumble and those with money invested are going to lose.

High yield investment programs are based on principles similar to gambling. While most of do not, there are people in the world who make their living traveling around to casinos and gambling. Is it a scam? No. In fact most of us at least respect the fact that the individual is competent enough at playing casino games that they can earn a living at it regardless of how we feel about gambling ourselves. The same applies to earning a living from high yield investment programs. Most investors do not even consider them real investments and scoff at those who attempt to earn a living through high yield investing.

Most people who are able to fund their lifestyle and earn a living through high yield investment programs started in using one of two methods. They either jumped in with both feet at the first program that sounded good to them and lost everything they invested or they researched high yield investment programs until their fingers went numb before ever investing a dime. Either way, both parties came to the conclusion that to come out ahead in high yield investments programs they would have to do ample research and completely understand the system and principles before they were going to succeed.

Earning a living through high yield investment programs takes a system that is easy to implement and follow to prevent early closing and hefty losses. This system takes a lot of due diligence and of course, some very specialized knowledge about forex trading and even gambling.

Reading the website's method of investment can tell the average high yield investor a lot about the security, or lack thereof, for any particular program. Most will admit to trading in forex, which any average investor can do with a little knowledge and research. Some will tell you that they are trading in commodities as well and some admit that they are also gambling with the investors' money, literally. Any website that says they are gambling using fool proof methods of winning should absolutely be avoided at all costs. There is no fool proof method of gambling.

High yield investing is probably something to be avoided altogether, although that is an individual choice only an individual investor can make. However, if you choose to get involved with a high yield investment program and you loose your money, that was your choice as well. Just like it is possible to loose money in the stock market, you are likely to loose money in high yield investments. An investor that looses money in the stock market doesn't typically file a lawsuit against the broker, so why are people so quick to file lawsuits and complaints when they loose money in high yield investment programs?

The answer is unpleasant but for the most part it is true. Greed. We can accept that there are poor investments out there and should we loose three or four thousand dollars in a bad investment we accept it as part of the potential outcome of investing. Yet because we got excited and our minds started spending the money we were hoping to see through a high yield investment now suddenly the people who run these programs are thieves. High yield investments are investments even if they do border on scams and you run the risk of losing your money. Remember the basic principle of any investment? The higher the return the more likely you are to lose your money.

High yield investments are incredibly risky and some of them are actually scams. Scam artists are everywhere and if there are people in the world who are willing to fork over thousands of dollars in the unrealistic hope that they can turn it into ten of thousands of dollars in a relatively short period of time then there will be people who are willing to steal that money from potential investors.

People are willing to donate their money to any valuable cause, so there are people who are willing to set up phony charities to steal donations from giving people. That certainly doesn't make every charity a scam and people aren't going to stop donating to charities of their choice. Just as there are individuals who will take advantage of people's kindness and desire to give to charities, there are individuals who are interested in scamming money from people who are trying to improve their financial portfolio through high yield investment programs. That doesn't mean every single high yield investment program is a scam.

The one thing all high yield investment programs do have in common is that sooner or later they will all fold, even those that start out being profitable. Just because a high yield investment program starts off producing the returns that it proposed in the beginning doesn't mean that it will continue to do so over a long period of time. This is how the high yield investor gets dramatically burned. One or two programs that delivers for a period of time doesn't mean it's time to quit the job and devote all the available resources to high yield investing. It means that one or two programs are doing well. They will not do well forever and sooner or later they will crumble. That is the nature of high yield investing.

High Yield versus Conservative Investing

Which investment strategy is right for you? Only an individual investor can answer that question for their own interests. Some people can tolerate the significant risk factors while others prefer the stability of the more conservative and conventional methods of investing. Some people are more willing to take a gamble than others, and by all means high yield investing is a form of gambling.

There are dramatically fewer scams in conventional investing. Some people will always believe that high yield investing is a scam and there is nothing that will convince them otherwise. Just because some people are able to be successful doesn't mean that a program is not a scam. And just because something is a scam doesn't mean that some money can't be made anyway. Does it make it right or real or worthwhile? Again this is something that each individual investor needs to determine for themselves.

For solid investment advice and a clearer path to investment success, independent advice and research is the best way to go. For all kinds of independent investment advice, stop by onlinetradingideas for comprehensive investment strategies, advice, and independent research. This site is particularly useful for making the most from conventional trading ideas and profiting from forex trades without having to enter the realm of high yield investment programs.

Bobby Ryatt
http://www.onlinetradingideas.com
http://onlinetradingideas.blogspot.com

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Starting Small with High Yield Investment Programs

"The key to making money in stocks is not to get scared out of them." - Peter Lynch

Are you interested in investments but the thought of actually doing it scares you to death? Do you wonder exactly how much money you need to start investing? To begin investing, new investors need to remember to start small and be educated.

You can start investing, today, for only $100 dollars. Most people can scrape together an extra hundred dollars and begin investing. The goal is to find the investment which will give you the highest return possible and really make that $100 dollars work for you.

After all you worked hard for it. Most people think that the only place to invest money is in stocks, bonds, real estate, and mutual funds. However, one of the best ways to invest small amounts of money or 'capital' is in high yield investment programs or HYIPs.

High yield investment programs are available online and anyone can invest in them. The individual can choose how much they want to invest, who to invest in, and when to stop investing. High yield investment programs are open to anyone who wants to participate in them unlike other investment vehicles which require a huge initial investment. Most high yield investments give a 20% to 40% rate of return per month. If you begin with a $100 dollars at the end of the month, you can see your money grow to $140 dollars. If you choose to keep reinvesting this money could quickly reach several thousands of dollars.

It is important to point out that all investments have risk, and high yield investment programs do.

They are a great way to raise capital quickly but they are not secure enough for establishing long term wealth. This type of investment takes the same level of research and money management as other investments doe. High yield investment programs can also be financial schemes. Make sure before you invest in anything that you fully research the company and investment guidelines.

You can start investing with just $100 dollars. Starting small, is the best way to get your feet wet in the stock market and know if it is right for you. By starting small you have very little to lose. In the worse case scenario, you lose your $100 dollars and move on. Do not miss out on making your money work for you because you are afraid. You should not fear investing, when done right, it can be extremely rewarding. Everyone, no matter how much money they have, has the right and the ability to invest and secure their financial future..

Visit the Global Investment Institute [http://www.global-investment-institute.com/glossary/terms.php] and signup for our free Investing For Beginners E-Course at www.Global-Investment-Institute.com Investment webmasters or publishers, please feel free to use this article provided this reference is included and all links remain active.