Senior Loan Funds – These are not loans made to OAP’s but large, ultra-short duration loans made to non-investment grade businesses primarily in the U.S. and Europe.
Senior loans are classified as non-investment grade assets, so they typically pay a higher rate of interest than other short-term debt instruments. This rate of interest is based on a fixed spread over a base rate, which floats with market rates and resets every 45-60 days on average. Unlike high yield bonds, senior loans are secured by collateral and hold the highest rank in a borrower’s capital structure, giving them priority over other creditors, bonds, and all preferred and common stock.
The unique combination of floating rates and secured collateral helps senior loans complement fixed-income portfolios and can provide valuable portfolio diversification for institutional investors.
Have your advisers incorporated this type of fund in your investment portfolio ?
Typically these funds are hedged and so care is required when you select the particular fund that is suitable for you, as always take advice.