Bank-Loan Funds Are in a Sweet Spot

They do well when rates are rising and the economy is strong.

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As interest rates fell in 2019 and 2020, investors paid bank loans little attention. But an economic recovery and the likelihood of rising short-term interest rates are prime conditions for these loans, which pay an interest rate that adjusts every few months in step with a short-term bond benchmark. When yields rise, most bond prices fall. But bank loans, often called floating-rate loans, retain their value.

The managers at Fidelity Floating Rate High Income (FFRHX), Eric Mollenhauer and Kevin Nielsen, perform detailed analysis on each company before they add a bank loan to the fund.

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Nellie S. Huang
Senior Associate Editor, Kiplinger's Personal Finance

Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.