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From: alan@mtxinu.UUCP (Alan Tobey)
Newsgroups: net.invest
Subject: Re: GinnieMae funds
Message-ID: <532@mtxinu.UUCP>
Date: Mon, 24-Feb-86 15:32:43 EST
Article-I.D.: mtxinu.532
Posted: Mon Feb 24 15:32:43 1986
Date-Received: Fri, 28-Feb-86 21:25:15 EST
References: <2437@sdcc6.UUCP>
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Organization: mt Xinu, Berkeley, CA
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> Can anyone explain why different GinnieMae funds pay
> different rates.  Also, what are the risks of higher paying
> funds?  (They seem to range from 10% to almost 12%).  Is
> there any systematic way to determine which fund is
> currently paying the highest rate?

GNMA funds invest in pools of government-guaranteed mortgages,
whereas money-market funds are based on short-term commercial debt.
The difference in yields reflects the market: you pay more for your
mortgage than big banks do foor short-term funds.

The risk compared to money-market funds is that the per-share price
of the fund varies, not just the day-to-day yield.  The extra few
percent in annual yield could (theoretically) be wiped out if the
per-share price declined.  This is most likely to happen if mortage
interest rates INCREASE, decreasing the relative value of the
mortgage pools the fund holds at the time of increase.  Conversely,
if rates decline the value of the fund should increase.  In practice,
the value of the fund shares are fairly stable, and don't (for example)
follow stock prices in general.  Over the last few months of booming
stock prices, most gnma funds have varied within a 2-3% range.

A good way to hedge your bet is to establish both a money-market
fund and a gnma fund with a company that allows telephone transfer.

MONEY magazine periodically publishes comparisons of these funds.