Bank loans: strategic allocation

May 31, 2019

Investable bank loans are floating-rate loans made to speculative-grade issuers that theoretically constitute a safer alternative to high yield bonds.

Because bank loans pay a floating interest rate, they provide a hedge against rising short-term interest rates. In addition to potentially hedging these risks, bank loans offer broader portfolio diversification benefits. We believe that most institutional investors would benefit by investing in bank loans, which, when combined with an allocation to traditional high yield bonds and other lower quality debt issues, would constitute a fraction of perhaps a 5% to 15% allocation to credit generally.