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

Mummy wearing jewellery unearthed in Egypt
London, Nov 23 (IANS) Spanish archaeologists have discovered about 4,000 years old female mummy wearing rare jewellery in Egypt.
 
 
Exercise and fasting could boost brain's functions
Washington, Nov 23 (IANS) Exercise along with occasional fasting is good for boosting the brain's neurons, shows a new research.
 
 
One infant dies in Pakistan hospital
Islamabad, Nov 23 (IANS) One more infant died due to lack of oxygen in an incubator and negligence of the hospital administration in Pakistan, bringing the number of such deaths to 19 in the past five days.
 
 
American whiskey faces challenge in whisky-gulping India
Washington, Nov 23 (IANS) For the most part Indians love things American, but when it comes to their tipple, the world's largest whisky drinkers usually go for Scotch or their very own home-made brands.
 
 
 

Latest from the Network

14 killed in Afghanistan bombing
Kabul, Nov 23 (IANS) At least 14 people were killed and 35 wounded Sunday in a suicide bomb attack at a volleyball ground in Paktika province of Afghanistan, a source said. "The blast occurred late in the evening....
Read more on Politics Balla
 
Hamilton wins Abu Dhabi GP, World Championshi
Abu Dhabi, Nov 23 (IANS) Mercedes driver Lewis Hamilton comprehensively won the season ending Formula 1 Abu Dhabi Grand Prix and in the process also clinched the drivers' World Championship for the second time here...
Read more on Sport Balla
 
Iraqi forces attack IS-held towns
Baghdad, Nov 23 (IANS) Iraqi security forces attacked two towns held by the Sunni radical group Islamic State (IS) in Iraq's eastern province of Diyala Sunday, police said. Security forces backed by Shia militias and...
Read more on Politics Balla
 
Walmart, Best Buy, Amazon and Sam's Club Black Friday 2014 Sales are Live
The big retailers cannot wait this year and launched Black Friday 2014 sales as early as Friday. These sales are the real deal offering deals that are advertised in Black Friday 2014 Ads. On Friday Walmart Black Friday...
Read more on Black Friday Countdown
 
Pune FC seal semifinal berth in King's Cup
Thimphu, Nov 23 (IANS) Pune FC thrashed Assam State Electricity Board FC 5-0 in a third round Group-B encounter to seal their place in the semi-finals of the 2014 King's Cup at the Changlimithang Stadium here Sunday....
Read more on Sport Balla
 
Australia the team to beat at World Cup: Vaughan
London, Nov 23 (IANS) Former England captain Michael Vaughan Sunday said that having hit upon a rich vein of form against South Africa, Australia have emerged as the front-runners and will be the team to beat at the...
Read more on Sport Balla
 
Taylor Swift to receive Dick Clark Award
Los Angeles, Nov 23 (IANS) Singer Taylor Swift has been named as the first recipient of Dick Clark Award For excellence at 2014 American Music Awards (AMAs). The 24-year-old, who is enjoying a great year with her...
Read more on Celebrity Balla
 
Australia displace India as top ODI team
Dubai, Nov 23 (IANS) Four-time World Champion Australia Sunday returned to the top of the One-Day International (ODI) Team Rankings, displacing India, after defeating South Africa 4-1 in a five-match series, as per the...
Read more on Sport Balla
 
Iraqi court sentences Sunni politician to death
Baghdad, Nov 23 (IANS) An Iraqi court Sunday sentenced a former Sunni lawmaker to death on a criminal charge, an official said. "The Central Criminal Court issued today a verdict of death penalty for the former...
Read more on Politics Balla
 
Amzon Black Friday 2014: $3.99 Blu-ray Movies
Black Friday 2014 Sales events are underway since Friday with the Amazon Black Friday 2014 Deals Week and the Walmart Black Friday Pre Sale. Walmart matched several advertised Black Friday 2014 deals of competitors on...
Read more on Black Friday Countdown