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In today’s market environment, investors are not only continuing to search for income but are also seeking to limit interest rate risk. With those objectives in mind, bank loan investment funds have continued to rise in popularity. For many investors, we believe that substituting a portion of your bank loan portfolio for zero duration high yield could be an effective means of reducing a portion of the unknown liquidity risk of a comparatively untested asset class.
Important Risks Related to this Article
There are risks associated with investing, including possible loss of principal. Non-investment-grade debt securities (also known as high-yield or “junk” bonds) have lower credit ratings and involve a greater risk to principal. Fixed income investments are subject to interest rate risk; their value will normally decline as interest rates rise. The duration Funds seek to mitigate interest rate risk by taking short positions in U.S. Treasuries, but there is no guarantee this will be achieved. Derivative investments can be volatile, and these investments may be less liquid than other securities, and more sensitive to the effects of varied economic conditions.