Net asset value (NAV) stability was a hallmark of the floating rate loan category in years past. Most funds carried their holdings at par value on the books, so prices seldom deviated more than a few pennies in any given year. The adoption of �mark-to-market� accounting rules changed all that. But price swings are usually mild — at least under normal conditions.

And NSL has been better than most. The fund only experienced eight quarterly declines between 2000 and 2007 — and the steepest of those was just -3.0%. But when the market went haywire last year, the fund backtracked -13% during the third quarter and then plummeted -44% during the fourth quarter.

The meltdown was caused in part by forced selling from hedge funds to meet margin calls, and other extraordinary one-time events that are now behind us. Investors pounced on the once-in-a-generation buying opportunity — and NSL surged a jaw-dropping +108% this year.

That type of gain is unheard of for a short-term bond fund.

Not surprisingly, it scores in the top 1% of the bank loan category, further cementing the wide lead that NSL has built during the past decade.

Those gains won’t be repeated anytime soon but the fund still looks attractive. The broad portfolio spreads its assets over 200 bank loans covering healthcare, media, gaming and many other sectors. Those holdings are now throwing off monthly dividends of $0.04 per share, which adds up to a yield of 6.9%.

And keep in mind, that’s with interest rates languishing at their lowest levels in a generation.

Action to Take —> NSL typically stays a few steps ahead of the competition in the bank loan sector and manages to get ahead by using less leverage than its peers.

I should note that expenses are on the high-side. But the fund has been well worth the cost. I plan to add NSL to my High Income Portfolio at the closing bell on December 7th.

—Nathan

What you just read was an excerpt from the December 2009 issue of Nathan Slaughter’s premium advisory service, The ETF Authority.

Are you even a little bit interested in knowing more about the only security that lets you participate so effortlessly in any economic sector or region in the world? (In some cases, the only way to do so.)

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