I have mentioned in recent weeks that with the equity market rising above 1,000 on the S&P a cautious approach to investment capital here is warranted. One way to tone down one’s risk profile, but continue to seek investment gains, is to focus on lower risk areas of the capital structure. Specifically, preferred stocks and various credit related securities can offer strong yields but also limit downside volatility.
From my perch such securities are attractive for two reasons, not only due to the recent market rally, but also because the credit crisis has depressed many prices on various debt securities. With corporate defaults on the rise, yields have risen and offer investors tremendous opportunities if they can pinpoint the higher quality credits that stand a great chance of being repaid in full.
As if they were reading my mind, value-oriented mutual fund shop Third Avenue, a highly successful firm for more than two decades, recently launched a new mutual fund focused entirely on the credit sector of the market. The Third Avenue Focused Credit Fund (MUTF:TFCVX) began offering shares on August 31st at a net asset value of $10.00 per share.
Third Avenue describes the fund’s targets as “the team’s highest conviction ideas across the credit spectrum, including high yield bonds, bank loans, and distressed securities.” The fund’s minimum investment is $2,500 and the prospectus indicates the team will invest in 50-60 different credit securities, which is about half the size of the typical mutual fund.
I have long been a fan of Third Avenue and initiated a position in this new fund in my personal account last week. For those investors who are interested in credit securities, but don’t really want to do the legwork themselves, I would suggest you look into this new Focused Credit fund offering.
Disclosure: Long TFCVX