The just-released annual report of the Regions Morgan Keegan Select High Income Fund and the Regions Morgan Keegan Select Intermediate Bond Fund indicate that funds with subprime mortgage-backed securities and other structured products have turned overwhelmingly to fair value to price their holdings, The Wall Street Journal reports.
The first fund used fair value for 60% of its holdings, and the second, 50%. In so doing, the funds assessed the types of securities, the cost at the date of purchase and changes in interest rates since then, as well as collateral quality.
In addition, the funds’ investment advisor has bought a substantial amount of shares to provide liquidity. It purchased $55.2 million of the High Income Fund and $30 million of the Intermediate Bond Fund in July and August.
The fund has been hit with serious redemptions, according to Morningstar, which has forced the fund to sell positions at much lower prices and could prevent it from recovering from the current challenges.
The High Income Fund, the worst performing junk bond fund for the one-, three- and five-year performance periods, is down 35% year to date.
“What was an ocean of liquidity has quickly become a desert,” according to the funds’ portfolio manager, Jim Kelsoe. “Basic credit measures have eroded to varying degrees.”
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.