Senior loans enable investors to add pure credit exposure to their portfolios because they don’t have the duration risk, or interest rate sensitivity, of other corporate bonds.

Senior loans1 have historically offered yields that exceeded both investment-grade bond yields2 and inflation rates. Moreover, the loans’ senior/secured position in the capital structure has resulted in historically lower volatility and default losses compared with the experience of high yield bonds3.

History suggests that adjusting a purely investment-grade bond portfolio to include an allocation to senior loans can help increase the yield of the portfolio, and help reduce the overall volatility in a meaningful way. A portfolio with an allocation to senior loans has also produced a high Sharpe ratio— a measure of returns delivered per unit of risk—over the past 24 years (since the inception of the Credit Suisse Leveraged Loan Index, 12/31/91).

Read our paper Seeking Income and Lowering Volatility: The Role of Senior Loans in a Fixed Income Portfolio for a deeper dive into how combining senior loans with investment-grade bonds in a fixed income portfolio, and maintaining the exposure through full credit cycles, can help improve the risk-adjusted returns of the portfolio.

For some basic education on senior loans, including answers to frequently asked questions access A Guide to Investing in Senior Loans.

1 Senior loans as measured by the Credit Suisse Leveraged Loan Index. The Credit Suisse Leveraged Loan Index is a composite index of senior loan returns representing an unleveraged investment in senior loans that is broadly based across the spectrum of senior bank loans and includes reinvestment of income (to represent real assets).

2 Investment-grade bonds as measured by the Barclays Aggregate Bond Index. The Barclays Aggregate Bond Index is an index of U.S. Government and corporate bonds that includes reinvestment of dividends.

3 High Yield bonds as measured by the Barclays High Yield Bond Index. The Barclays High Yield Bond Index is an index covers the universe of fixed rate, non-investment-grade debt.