Floating rate funds are also called "bank loan funds," "prime rate funds" or "loan participation funds."
A floating rate fund is a mutual fund that holds IOUs made by large companies, but they don't pay a fixed interest rate. Instead the interest rate is adjustable, in the same way that an adjustable rate home equity loan would work.
What this means for you as an investor, is that as interest rates rise, you would expect the interest payments you receive from a floating rate fund to increase.
Because of the adjustable rate of interest, it makes sense to own floating rate funds over time periods where you expect interest rates to rise, and less sense to own floating rate funds during times where you expect interest rates to decline.
For a detailed look at floating rate funds see Searching For Yield, a PBS video and article on floating rate funds.
