Institutional investors

The role of floating-rate bank loans in institutional portfolios December 2011 Martin Jaugietis, CFA Director, Head of Liability Driven Investment Solutions Yoshie Phillips, CFA Senior Research Analyst Maniranjan Kumar Associate Bank loans are among the few fixed income sub-asset classes to offer the potential for protection and positive returns in a rising interest rate environment, due to their floating rate characteristics. Historically, default rates for bank loans have been higher than those of high-quality corporate bonds but lower than those of high-yield bonds, and their recovery rates have tended to be stronger than those of high-yield bonds. We expect that bank loans will, on average, lie between aggregate bonds and high-yield bonds on the risk/return spectrum going forward – and that the extent to which they offer results more attractive than those delivered by other fixed income investments will be driven mostly by the LIBOR floor level (below which returns would not improve in a rising rate environment); by how far above that floor interest rates will rise. This paper outlines and discusses: A definition of bank loans, Risk and return characteristics of bank loans, Current market conditions for bank loans. Request this research A note about our research Our proprietary research is made available to our institutional clients, and many of these published papers are available to other institutional investors as well. If you are not a Russell client, but are an institutional investor, we welcome you to request this research piece. We only require your contact information on a short request form. For more information about our research, please contact David or Gerry:     West Coast David Rothenberg Managing Director 866-926-5934 East Coast Gerry Lillis Director 866-459-4128 Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Date of first use: December 2011 USI-11787-12-13			Related information Request this research Printer friendly version of this page