Loans, An All-Weather Asset Class | ETF Trends

With returns on bonds as paltry as ever, fixed income investors must rethink their income strategies. Yet many such portfolios remain static, with one-dimensional, antiquated approaches still taking precedence.

In the upcoming webcast, Loans, An All-Weather Asset Class, George Goudelias, Head of Leveraged Finance, Senior Portfolio Manager, Seix Investment Advisors; and David Phipps, Senior Leveraged Finance Research Analyst, Seix Investment Advisors, will explain the diversification benefits of senior loan strategies.

Specifically, the actively managed Virtus Seix Senior Loan ETF (NYSEArca: SEIX) seeks to provide investors with a high level of current income via first- and second-lien senior floating rate loans. Senior loans are typically used for business recapitalizations, acquisitions, leveraged buyouts, and re-financing.

The ETF is sub-advised by Seix Investment Advisors LLC, which will manage investments for the portfolio. Seix seeks to generate competitive absolute and relative risk-adjusted returns over the full market cycle through a bottom-up focused, top-down aware process. Seix employs multi-dimensional approaches based on strict portfolio construction methodology, sell disciplines and trading strategies with prudent risk management as a cornerstone.

The inherent risks associated with senior loans are similar to the risks of junk bonds, but have seniority in the event of borrower default. If the business is forced to sell its assets in a liquidation scenario, the senior loan will be paid first. In addition, senior loans are secured by assets whereas junk bonds are not, making them a more attractive investment option when constructing a loan portfolio.

SEIX invests in loans that possess floating coupon rates tied to a benchmark lending rate, and are below investment grade or unrated. The floating rate allows investors to capitalize on any short-term interest rate adjustments.

“Leveraged loans offer the potential for higher income and lower correlations to other fixed income asset classes, and though they may potentially provide protection in a rising interest rate environment, they have historically performed well in periods of stable interest rates,” according to Virtus Investment Partners.

Financial advisors who are interested in learning more about senior loan strategies can register for the Thursday, May 20 webcast here.