With the Fed funds rate closing in on its third birthday pegged at the rock-bottom low of zero to 0.25%, it's not hard to figure out which way rates are headed. "There's no place to go but up," says Diane Pearson, an advisor with Legend Financial in Pittsburgh.
When interest rates rise and bond prices fall, will the long bull market in bonds come to an end, or at least pause? Probably. But that doesn't mean fixed-income investors must suffer. That's where bank loan funds come in. They have the potential not only to withstand rising rates, but also to benefit from them. Many investors are getting the message, increasingly turning to them to hedge against higher rates. In fact, investors poured $23 billion into the funds in the first five months of the year, according to Lipper.
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