Question time: When's the last time you saw a 13-week T-bill yield with a handle that wasn't a zero? Need a clue? Think of the current occupant of the White House. Remember when he earned the lease? Yup, November 2008.

It's been seven miles of bad road for cash returns ever since.

Income fund manufacturers have (excuse the expression) “cashed in” on the lousy yield environment. In the wake of the rate plunge, these asset managers have launched a raft of new funds aimed at yield-hungry investors. Among them are alternative fixed income portfolios that invest in coupon securities from nontraditional issuers. Others are known, for lack of a better term, simply as alternative income funds, and buy noncoupon paper such as floating-rate notes (FRNs) and master limited partnerships (MLPs).

Each fund category produces a unique income stream and offers an idiosyncratic diversification benefit. The distinction is palpable, as you can see in the recent REP. mid-year review of alternative funds. Seasoned alternative income funds comprised the only segment out of a dozen that produced positive alpha in early 2015.

With rising interest rates on the horizon, investors and advisors are pondering the ability of alternative income funds to keep producing better-than-average yields with less-than-average risk. Of course, that depends on the investments made by each fund.

Among 21 alternative income funds with one-year track records, 10 invest in FRNs or bank loans, and four limit their buying to MLPs. The balance pursue absolute returns, employing a variety of securities and strategies. On a market-weighted basis, half of the money invested in alternative income funds is committed to absolute return strategies, though one particular fund—taking nearly all the segment's assets—crowds the field. The other half of alternative income capital is pretty evenly split between MLP funds, and portfolios invested in FRNs.