Fixed Income The case for senior loans - quarterly update
In this quarterly update we provide our view on the case for senior loans in the current market environment.
October 18, 2024
Fixed Income
Introducing Senior Loans
Aiming for a high level of consistent, inflation-hedged income throughout the market cycle.
Senior Loans
Rising rates and reflation are at the forefront of investor sentiment today, an allocation to senior loans may help reduce duration risk, potentially without diluting returns. Senior Loans had seen demand from investors across the globe as their attractive yield, compelling relative value, and diversification properties led to the asset class experiencing inflows.
Why senior loans today?
Senior loans offer a combination of appealing characteristics to help combat a low (and rising) yield investment landscape.
High income: Senior loans offer the potential for consistent monthly income and strong risk adjusted returns. The goal is to provide you with equity-like returns but with credit-like risk.
Floating rate feature: Removal of interest rate risk and short duration may deliver strong returns across different market conditions. The strategy primarily invests in adjustable rate senior loans whose interest rates float and typically reset every 60 days.
Compelling relative value: Senior loans offer one of the best yields in fixed income despite their senior secured status.
Diversification potential: Uncorrelated returns when compared to traditional listed equities and bonds can drive strong income and reduce volatility.
Senior secured status: Downside risk mitigation is provided by the senior secured status of our loans. Repayment prioritisation in the event of default can lead to higher recovery of collateral.
A quick look on Invesco Senior Loans Solution Team
Private side investing affords deeper access to management teams and private projections. This depth of insights also gives management an early look at new loan transactions and opportunities. Private side investing access has the potential to mitigate downside risk which can help to minimise credit loss.
As one of the largest loan managers in the world, we have access to virtually all loan issuances and serve as an important counterparty in the loan market. Our scale gives us a distinct perspective from which to build daily dealing, diversified senior loan portfolios on an advantageous cost basis
Scott Baskind, Kevin Egan and Michael Craig, who manage the strategy’s asset allocation and investments, all have over 20 years’ experience of Senior Loans investing. They are ably supported by a team of 32 investment professionals with an average of 18 years’ industry experience.
We view ESG as a credit risk. For this reason, ESG factors have formed part of our investment process since 2015. Read more about our ESG approach.
Explore the team's latest insights
Alternatives Yields maintain record highs and offer positive relative value
Invesco’s bank loans, direct lending and distressed credit teams to share their views as the second quarter of 2024 wraps up.
July 26, 2024
Global Bank loans in the time of higher for longer
Despite our view that disinflation should continue, we anticipate central banks are likely to keep rates “higher for longer”, well above recent history.
July 26, 2024
Investment risks
-
Data as at 31.12.2021, unless otherwise stated.
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Past performance is no guarantee of future returns.
Most senior loans are made to corporations with the below investment-grade credit ratings and are subject to significant credit, valuation and liquidity risk. The value of the collateral securing a loan may not be sufficient to cover the amount owed, may be found invalid or may be used to pay other outstanding obligations of the borrower under applicable law. There is also the risk that the collateral may be difficult to liquidate, or that a majority of the collateral may be illiquid. Compared to investment grade bonds, junk bonds involve greater risk of default or price changes due to changes in the issuer’s credit quality. Diversification does not guarantee of profit or eliminate the risk of loss.
Senior Loans Presentation
Connect with us for in-depth presentation focused on your investment challenges and opportunities.
