Within the current market environment, fixed-income investors are finding it challenging to generate strong income while preserving capital and insulating their portfolios from the risk of rising rates. As a result, investors’ portfolios may either generate little yield or be exposed to too much risk.
To increase income potential while reducing risk and interest rate sensitivity, we believe investors should consider combining investment-grade (limited- or intermediate-term) bonds with senior loans.
The Investment Grade Debt Team has taken a top-down, bottom-up investment approach within a risk controlled framework since its 2009 inception. The Senior Corporate Loan Team employs a bottom-up, fundamental approach to loan investing and has been led by the same portfolio manager since Senior Floating Rate Fund’s inception in 1999.
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Fixed-income investing entails credit and interest rate risks. When interest rates rise, bond prices generally fall, and a fund’s share prices can fall. Risks associated with rising interest rates are heightened given that rates in the U.S. are at or near historic lows. Below-investment-grade (“high yield” or “junk”) bonds are more at risk of default and are subject to liquidity risk. Senior Loans are typically lower rated and may be illiquid investments (which may not have a ready market). Derivative instruments, whose values depend on the performance of an underlying security, asset, interest rate, index or currency, entail potentially higher volatility and risk of loss compared to traditional stock or bond investments. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and geopolitical risks. Emerging and developing market investments may be especially volatile.
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 Managers 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.