White Papers

The timeless case for floating-rate loans as a strategic allocation

Floating-rate loans deserve consideration as a strategic portfolio allocation because they can offer:

1. Attractive yields – The yield on loans was second only to high yield among U.S. fixed-income sectors (as of June 30, 2016).
2. Protection against interest-rate risk – Loans have near-zero interest-rate duration and rates that move with the underlying benchmark – typically Libor.
3. A structure designed to mitigate credit risk – Senior/ secured positioning in the capital structure offers a layer of protection that is unique in the corporate fixed-income market.
4. A forward-looking allocation – Loans historically have outperformed the broad bond market in flat- and rising-rate environments, thanks to historically low correlation with traditional fixed-income sectors. We believe loans are likely to be an important source of diversification in the coming years.

Authors

Scott Page, CFA, Co-Director of Floating-Rate Loans, Portfolio Manager; Craig Russ, Co-Director of Floating-Rate Loans, Portfolio Manager; Christopher Remington, Director of Income Product & Portfolio Strategy;

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