As the portfolio team for Oppenheimer Senior Floating Rate Fund (SFR), the largest loan mutual fund by assets under management,1 we find that a large portfolio size offers multiple advantages when it comes to gathering information about the loan market. Some of these include:
1. Excellent Access to Management Teams
Time-pressed company management teams can’t respond to every lender’s call. Due to SFR’s large size and prominence in the loan market, we get better response rates from company management teams when we call with questions about earnings, progress on goals or other news.
2. Better Access to Sell-Side Research and Trading
We are often the first call for our sell-side counterparts when they have breaking news or new research. The trading desks of these firms will also call us first with bids and offers because we are responsive and they know that their calls can lead to large trades. These “early looks” can have meaningful and positive impacts on a loan portfolio’s performance.
3. Favorable Allocations on New Issues
When firms that underwrite senior loans plan to launch a new deal, they frequently solicit our thoughts on the company and the transaction prior to launch. We offer feedback about optimal structure and pricing and whether we might participate, which allows the underwriters to go back to issuing clients with reliable market color on where their deal would need to be priced and structured to ensure the best chance for a successful new issue launch. By sharing this valuable information, we are often first in line for allocations when deals become oversubscribed.
Firms that manage smaller funds often try to position themselves against SFR by insisting “we’re too big to invest in every deal that comes our way.” The fact is, the loan market is nearly $1 trillion in size and SFR’s assets under management were just over $13 billion as of December 31, 2016, representing a little more than 1% of the overall market. SFR currently owns positions in only 25% of total issues outstanding.2
Managing a senior loan portfolio may be a bit like playing basketball: Being bigger offers considerable benefits. In our view, the implication that size has disadvantages was invented by smaller players.
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1Source: Morningstar data, as of 12/31/16.
2Source: OppenheimerFunds, Inc. and Credit Suisse, as of 12/31/16.
Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value.
These views represent the opinions of the Portfolio Manager at OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.