JNK - FTF: A Good Compromise Debt CEF For A Strong Economy In 2024

2024-01-26 17:41:27 ET

Summary

• Franklin Limited Duration Income Trust is a closed-end fund that aims to provide high income while limiting interest-rate risk.
• The FTF CEF's historic price action shows a significant decline over the past five years, but its total return has outperformed the Bloomberg U.S. Aggregate Bond Index.
• FTF has a high yield of 11.79% and invests primarily in high-yield corporate bonds, floating-rate corporate loans, and mortgage- and other asset-backed securities.
• The market is starting to realize that it is wrong about the 2024 rate cuts, but expectations still appear far too optimistic.
• The FTF fund appears to be a pretty good compromise play for risk-averse investors that want to profit in case the Fed does cut rates drastically for some reason.

The Franklin Limited Duration Income Trust ( FTF ) is a closed-end fund, or CEF, that income-focused investors can use to achieve their goals of receiving a high level of income from the assets in their portfolios. As is the case with most limited-duration funds, the fund aims to reduce its interest-rate risk compared to similar funds, which could be valuable right now. After all, current market pricing still seems to point to expectations that the Federal Reserve will cut interest rates by at least 125 basis points in 2024, but recent economic data, such as today’s GDP report, is far too strong to support this narrative. As such, domestic bond funds in general appear to have a significant amount of risk baked into their current prices and might be primed to decline. The Franklin Limited Duration Income Trust should be able to hold up a bit better than many peers in such an environment.

Unfortunately, the fund’s historic price action would suggest that this fund is still fairly risky. As we can see here, the shares of this fund are down 30.63% over the past five years. This is substantially worse than the 8.38% decline of the Bloomberg U.S. Aggregate Bond Index ( AGG ) over the same period:

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