The potential for interest rates to rise off the current low levels could make floating rate mutual funds more popular posits WSJ Fund Track reporter Sam Mamudi. He adds, though, that those mutual funds do carry potential risks such as low credit quality and high relative expenses that may dim their appeal.

The funds lost 27 percent in 2008 based on research from Standard & Poor's Equity Research and then rebounded with a 41 percent gain in 2009.

Rob Dial, PM of the MainStay Floating Rate Fund [see profile] tells Mamudi that 2008 is the only year in which the category has shown a loss and that his fund invests in "senior and secured loans" that historically have had recoveries twice as high as high-yield bonds.

John Lekas, manager of the Leader Short Term Bond Fund [see profile], is less sanguine, noting that "Rising rates will be like throwing gas over a lighted match." 

Edited by: Sean Hanna, Editor in Chief


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