There’s a socially conscious fund that’s providing some stability at a time when broader market volatility reigns supreme — and rates continue to rise. The Invesco Floating Rate ESG Fund (AFRYX) last year shed just 2.25% on a total return basis, per Morningstar. Meanwhile, while the S & P 500 tumbled nearly 20% last year. The fund’s return was better than 51% of those in the same Morningstar category of U.S. bank loan funds, according to the firm’s data. The fund is lagging the S & P 500 year to date, gaining just 1.7% while the broader market index is up 4%. Still, the fund has posted positive returns in eight of the last 10 year. Its trailing 10-year return also outpaces 82% of other funds in the same category, Morningstar data show. The retail investor-focused AFRYX, which charges a fee of 0.81% and has a minimum investment of $1,000, is also the first floating-rate fund to screen for environment, social and governance factors, Invesco said. The fund began running ESG screens in 2015, though it wasn’t formally integrated into the ESG process until August 2020, according to Morningstar. It also has more than $2 billion in assets and is rated four stars by Morningstar. How it works The fund looks for returns in the debts of large companies, specifically in floating rate bonds. These are bonds with fluctuating interest payments. The fund’s floating-rate nature allows it to be more nimble in times like these, when interest rates are rising. The Federal Reserve on Wednesday hiked rates by 25 basis points. And, while Chairman Jerome Powell acknowledged that credit conditions are tightening, he noted that the central bank has no plans of cutting rates soon. Under normal circumstances, at least 80% of the fund’s net assets and any additional borrowings used for investments are placed in senior secured floating rate loans from banks or other lenders, or senior secured floating rate debt instruments. Senior secured is a term used to describe short-term debt obligations. In other words, the lion’s share of the fund is in short-term bonds that have floating interest rates. The fund can also look elsewhere, including in “junk bonds,” or floating rate debt securities that aren’t considered investment grade, and subordinated loans, which are only paid off after primary loans. Up to 20% of holdings can be in other types of debt or stocks, which Invesco said is done in part to increase yield and cash flow. Biggest holdings While those are possible alternatives,…
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