OppenheimerFundsVoice: A Potential Income Solution For When Rates Rise

Mar 27 2014, 10:19am CDT | by

OppenheimerFundsVoice: A Potential Income Solution For When Rates Rise
Photo Credit: Forbes Business

Although our view on interest rates is low for long, we understand clients’ concerns regarding rising rates. Irrespective of the direction of interest rates, the best opportunity in the fixed income universe is in credit.

Senior floating rate loans are particularly attractive in today’s market. They offer a hedge to rising rates as their coupon floats with 90-day LIBOR; they are senior in the capital structure and are usually collateralized by assets of the issuer. Finally, they presently pay a coupon that outpaces the current level of inflation. As an asset class, these loans have historically displayed low correlations to U.S. Treasuries, investment-grade government debt, investment-grade corporate bonds and stocks.

Access the full Low Rates for a Long Time, and Preparing for the Eventual Rise white paper.

This story previously appeared on OppenheimerFunds.com.

Source: Bloomberg, 12/31/13. The Credit Suisse Leveraged Loan Index is an unmanaged index that tracks the performance of senior floating rate bank loans. The Barclays High Yield Bond Index represents the U.S. high yield debt market. The Barclays Aggregate Bond Index is an investment-grade domestic bond index. The indices shown are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment.  Past performance does not guarantee future results. Fixed income investing entails credit risks and interest rate risks. When interest rates rise, bond prices generally fall, and a fund’s share prices can fall. Investments in below-investment-grade (“high yield” or “junk”) bonds are more at risk of default and are subject to liquidity risk. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and political and economic uncertainties. Emerging and developing market investments may be especially volatile. Diversification does not guarantee profit or protect against loss. Senior loans are typically lower rated and may be illiquid investments (which may not have a ready market). Investing in MLPs involves additional risks as compared to the risks of investing in common stock, including risks related to cash flow, dilution and voting rights. Each Fund’s investments are concentrated in the energy infrastructure industry with an emphasis on securities issued by MLPs, which may increase volatility. Energy infrastructure companies are subject to risks specific to the industry such as fluctuations in commodity prices, reduced volumes of natural gas or other energy commodities, environmental hazards, changes in the macroeconomic or the regulatory environment or extreme weather. MLPs may trade less frequently than larger companies due to their smaller capitalizations, which may result in erratic price movement or difficulty in buying or selling. Additional management fees and other expenses are associated with investing in MLP funds. The Oppenheimer SteelPath MLP Funds are subject to certain MLP tax risks. An investment in Oppenheimer SteelPath MLP Fund does not offer the same tax benefits as a direct investment in an MLP. The Funds are organized as subchapter “C” Corporations and are subject to U.S. federal income tax on taxable income at the corporate tax rate (currently as high as 35%) as well as state and local income taxes. The potential tax benefit of investing in MLPs depends on them being treated as partnerships for federal income tax purposes. If the MLP is deemed to be a corporation, its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution, which could result in a reduction of the fund’s value. MLPs funds accrue deferred income taxes for future tax liabilities associated with a portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments. This deferred tax liability is reflected in the daily NAV and as a result a MLP fund’s after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked. These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on March 21, 2014 and are subject to change based on subsequent developments. Carefully consider fund investment objectives, risks, charges and expenses. Visit oppenheimerfunds.com, call your advisor or 1.800.225.5677 (CALL-OPP) for a prospectus with this and other fund information. Read it carefully before investing. Oppenheimer funds are distributed by OppenheimerFunds Distributor, Inc. OppenheimerFunds Distributor, Inc. is not affiliated with Forbes.
© 2014 OppenheimerFunds Distributor, Inc. All rights reserved.

Source: Forbes Business

/>
 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Martian structure reveals signs of life on Red Planet
Washington, Aug 20 (IANS) A new mineral-rich structure discovered from a Martian meteorite has led scientists to believe that there may be niche environments on Mars subsurface that support life.
 
 
New vaccine offers protection against tuberculosis, leprosy
Washington, Aug 20 (IANS) In a breakthrough, US researchers have found that an improved tuberculosis vaccine can offer strong protection against leprosy.
 
 
Handwashing with antibacterial soap may not be a good idea
New York, Aug 20 (IANS) Next time when you buy an antibacterial soap for a germ-free day for your kids, check if the soap contains a widely-used chemical or not.
 
 
Transparent solar device that doesn't block the view
Washington, Aug 20 (IANS) Imagine a solar device that, when placed over a window, creates solar energy while allowing people to actually see through the window.
 
 
 

Latest from the Network

Emraan Hashmi's foreign film 'Tigers' to premiere at TIFF
New Delhi, Aug 20 (IANS) Indian actor Emraan Hashmi's debut international project "Tigers", directed by the Oscar winning Danis Tanovic, will have its world premiere at the prestigious Toronto International Film...
Read more on Celebrity Balla
 
Martian structure reveals signs of life on Red Planet
Washington, Aug 20 (IANS) A new mineral-rich structure discovered from a Martian meteorite has led scientists to believe that there may be niche environments on Mars subsurface that support life. The ovoid structure...
Read more on Apple Balla
 
New vaccine offers protection against tuberculosis, leprosy
Washington, Aug 20 (IANS) In a breakthrough, US researchers have found that an improved tuberculosis vaccine can offer strong protection against leprosy. "This is the first study demonstrating that an improved vaccine...
Read more on Business Balla
 
IS claims beheading US journalist
Damascus, Aug 20 (IANS) The Islamic State (IS) group has claimed beheading a US journalist who had gone missing in Syria nearly two years ago, a media report said Wednesday. The Sunni militant group has released a...
Read more on Politics Balla
 
Jennifer Hudson's brother arrested for 'stabbing love rival'
Jennifer Hudson's half-brother has been arrested for allegedly repeatedly stabbing a love rival in the face. Stephen Simpson is being held in custody in Michigan and is expected to be charged with attempted murder and...
Read more on Celebrity Balla
 
Gary Busey claims Patrick Swayze's ghost connection
Gary Busey claims he was visited by Patrick Swayze's ghost last week. The 'Lethal Weapon' actor believes he has a connection to the spiritual world after his heart stopped during brain surgery after a motorbike crash...
Read more on Celebrity Balla
 
Handwashing with antibacterial soap may not be a good idea
New York, Aug 20 (IANS) Next time when you buy an antibacterial soap for a germ-free day for your kids, check if the soap contains a widely-used chemical or not. Handwashing with antibacterial soap may expose people...
Read more on Business Balla
 
Transparent solar device that doesn't block the view
Washington, Aug 20 (IANS) Imagine a solar device that, when placed over a window, creates solar energy while allowing people to actually see through the window. Researchers at Michigan State University has developed a...
Read more on Apple Balla
 
Spain knock out India in squash championship
Windhoek (Namibia), Aug 20 (IANS) Spain defeated India 2-1 in the quarterfinal of the WSF World Junior Squash Team Championship here Tuesday. In the first singles, Madhav Dhingra lost to Iker Pajares 4-11, 9-11, 6-11...
Read more on Sport Balla
 
Aaron Paul in awe of David Beckham
Aaron Paul was shocked when David Beckham asked him for a selfie to send to his wife Victoria. The 34-year-old actor - who shot to fame playing meth manufacturer Jesse Pinkman in US drama series 'Breaking Bad' - was...
Read more on Celebrity Balla