In advance of tonight's conference call with David Sherman, I thought I'd share excerpts for a newly-released "Tip Sheet" on the fund. I pulled the sections that help address the question "where might this fit in my portfolio," since that seemed to generate the greatest amount of conversation when the topic last arose.
The ellipses (...) indicate places where I've deleted paragraphs.
For what it's worth,
David
TIP SHEET: RiverPark High-Yield Fund Seeks Junk as Good as Cash
By Cassandra Sweet
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With nearly $181 million in assets under management, the fund seeks out specific buying opportunities in bonds rated below investment grade that have the lowest possible risk. Such investments also tend not to have the highest yields in the sector, but Mr. Sherman says they're so safe, they can be considered as good as cash, with a yield that's higher than keeping your money in a bank or money-market account.
"I manage this fund as an alternative to cash," Mr. Sherman says. "Outsiders perceive, by virtue that it's a junk bond, that it's a high credit risk, but if you look through the noise, it's actually a low credit risk."
. . .
More than one-third of the fund's investments are in called bonds, or redeemed debt. These are debt securities that allow the issuer of the bonds to redeem, or pay off, the bonds before they reach their maturity dates. Corporations routinely pay off bonds before the due date, often replacing them with new debt that has lower interest rates. When a company refinances its debt in this manner, it has to give 30 days' notice to the holders of the bonds it plans to call, or pay off early. It's during those 30 days that RiverPark Short-Term High Yield Fund buys these called bonds.
The fund also invests in cushion bonds, which are callable bonds that sell at a premium because they have above-market interest rates. The fund also invests in short-term maturities, or junk bonds with maturities of three years or less.
The average expected maturity of investments in the portfolio has been four to eight months, with between 40% and 60% of investments rolling into cash every 60-90 days, Mr. Sherman says.
Mr. Sherman says he looks closely at the strength of the company calling the bonds, especially its business model. If it's a strong company, the risk in holding the called bonds for 30 days is very low, Mr. Sherman says. The primary risk is that the company could file for bankruptcy during those 30 days, which is rare for a strong company, he said.
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"I'm not trying to get you a total return," Mr. Sherman says. "If the yield on [an investment] is 2% and I can own 100% of that paper at 102, it'll make me the worst performing fund in a bull market, but that's OK because I'm not competing with other high-yield funds, I'm competing with cash."
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