Senior loans may offer investors a potential solution to pursue both. Over the last five years, senior loans have produced the highest risk-adjusted yields, compared with U.S. Treasuries, investment-grade debt, and high-yield bonds.1
3 key benefits of senior loans include:
- Strong relative yields with low interest-rate risk,
- Senior and secured status in a company’s capital structure along with historically lower relative volatility than high-yield bonds,2 and
- Portfolio diversification to traditional asset classes.
In light of the recent rate increase by the U.S. Federal Reserve’s (Fed), we believe the time may be right for investors to consider an allocation to senior loans. In most rising rate environments, senior loans have historically outperformed traditional fixed income asset classes.
For a deeper dive into the potential benefits of allocating to senior loans, read our paper.
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1Source: Bloomberg, 3/31/18. Past performance does not guarantee future results.
2Sources: JPMorgan Research and Bloomberg, as of 3/31/18.
Short-term interest rates and longer term Treasury rates may or may not move in tandem directionally or in magnitude.
Senior loans are typically lower-rated and may be illiquid investments (which may not have a ready market). 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. Diversification does not guarantee profit or protect against loss.
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 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.