Scudder Investments has elected to liquidate its Floating Rate Fund on Dec. 20, due to weak credit conditions and low interest rates, according to a letter sent to shareholders by Scudder Distributors, investment manager to the Scudder funds. "Even though Scudder believes the market conditions will eventually improve, we believe that investor sentiment toward the bank loan market and bank loan funds will not easily change, limiting future growth rate opportunities for Scudder Floating Rate Fund," the letter states. The fund was valued at $130 million on 6/30/02. Loan-participation funds have been hammered for some time, though some investors are predicting an upturn in the cycle (LMW, 3/17).
Weak credit conditions-and interest rates among the lowest in U.S. history-have contributed to the deterioration of bank loan prices and significantly reduced the earnings capabilities of funds that invest in bank loans, the letter adds. The performance characteristics of bank loans also changed since the inception of the fund, creating more volatility in the fund's share price than anticipated at the fund's inception. Joseph Moran, v.p. at Scudder Distributors, did not return calls.
The fund underperformed its average peer in the Lipper Loan Participation Funds category in the first half of the year. According to the Web site, the refinancings dominating activity in the new issue leveraged loan market hurt the funds performance. "That exodus of healthy issuers coupled with more announcements of corporate accounting irregularities from some U.S. companies, hurt both the fund and the general loan category." While the fund's stake in industrial, consumer product and aerospace sectors were of some help, refinancing among some cyclical and media issuers and lackluster results among wireless telecommunication borrowers hurt overall returns.