The Fidelity Floating Rate Fund (MUTF:FFRHX) is a bank debt fund that has too much risk. Back in 2008, this fund got crushed. The amount of debt in this fund that is off by 25% is astounding. As debt markets continue to fall, you'd be smart to bail out.
In 2015, the NAV at the beginning of the period was $9.85. There was 0.375% in income and 0.425% in losses. The average fees were 0.98%. After everything, the NAV was $9.42. A total loss of 0.53%.
Total assets are $10.784 billion. 46.2% of the loans are BB rated and 38.9% are B rated. 87% are bank loans. 11.5% is technology, 10.4% healthcare, 7.6% telecom, and 6.3% gaming. The 30 Day SEC yield is 5.26% and the average maturity is 4.1 years.
I dug into the Annual Report on the SEC Edgar web site. I am focusing on the loans that are substantially down in value. As you might guess, many of these are in oil and gas.
Pacific Drilling (NYSE:PACD) is a penny stock trading at 37¢ a share. According to the quarterly report, Pacific has $151 million in cash and $146 million in accounts receivable. This is to $37.7 million in accounts payable and a whopping $2.94 billion in debt. Yikes! No wonder the senior bonds were trading so low. The fund holds four different series of debt issued by Pacific. As of 10/31/15, the largest loan had purchase value of $21.5 million and was down to $11.589 million. There is a smaller amount of debt with a maturity of 12/1/17. As of the October report, it was listed as a purchase of $1.5 million and a current value of $1.03 million. According to Finra, that debt is now trading at 34¢ on the dollar. Moody's has downgraded the company's debt to Caa2. Pacific is a small holding of the fund.
A loan from Seadrill (NYSE:SDRL) had a purchase value of $47.293 and was worth $27.473 in October. The loan matures 2/21/21. It's difficult to say what the bank debt is trading at but a bond with a maturity of 2020 was worth 67¢ at the end of October and is now worth 30¢.
A Peabody Coal (NYSE:BTU) loan due 9/24/20 was purchased at $33.348 million and has fallen to $22.040 million in October. I don't know what the bank debt is trading at but an unsecured bond has lost 93% of its value according to Finra.
I counted over $800 million in debt that was down over 25% in value. This report was from October and as of today, the NAV is $9. So the fund is down 4.45% in four months. Remember, this is a floating rate fund. When these are sold by financial advisors, they are sold as safe. The growth chart of $10,000 shows that $10,900 in 2007 became worth only $7,700 in 2008. This thing has the durability of a tech fund when the markets go south.
I'd recommend you sell this fund. The risk is not worth it. Maybe if you want to do some bottom feeding in a year or two, it would be a great place.
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