The ongoing case for senior loans

For more information about how senior loans may enhance your investment portfolio, consult with your financial advisor, or visit nuveen.com.


Glossary
Correlation is a statistical measure of how two securities move in relation to each other. Perfect positive correlation (a correlation coefficient of +1) implies that as one security moves the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation (a correlation co-efficient of -1) means that securities will move by an equal amount in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; their movements in relation to one another are completely random. Effective duration (sometimes called option-adjusted duration) is a more refined calculation than the basic “modified duration” which is often used, and recognizes that the probability that a bond will be called or stay outstanding until maturity will vary if market interest rates change. Effective duration requires the use of a model for pricing bonds that adjusts the price of the bond to reflect changes in the value of the bond’s “embedded options” (e.g., the right of the issuer to call the bond prior to maturity, or a sinking fund schedule) based on the probability that the option will be exercised. The model makes several assumptions so effective durations may not be comparable to the durations of funds outside the Nuveen fund complex. Duration for senior loans is based on the maximum reset period for loan interest payments, which is quarterly — or the equivalent of 0.25 years effective duration. As interest rates rise, bond prices fall. Standard deviation (risk) is a statistical measure of the historical volatility of a mutual fund or portfolio; the higher the number, the greater the risk. Yield to worst is the lowest potential yield that can be received on a bond without the issuer defaulting. Senior Loans yield is the 3-year yield to average life. The 3-year yield to average life is the par-weighted average time (in years) to the principal repayment for non-callable securities and the par-weighted average time (in years) to the probable call/put for callable securities. The Bloomberg Corporate High Yield 2% Issuer Capped Index measures the USD-denominated, high-yield, fixed-rate corporate bond market and limits each issuer to 2% of the index. The Bloomberg Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. The Bloomberg U.S. Aggregate Bond Index tracks the performance of U.S. investment-grade bonds. The Bloomberg U.S. Corporate Investment Grade Index is a broad based benchmark that measures the investment grade, fixed-rate, taxable, corporate bond market. The Bloomberg U.S. Treasury Index measures U.S. dollar-denominated, fixed-rate, nominal debt issues by the U.S. Treasury. The Bloomberg U.S. Treasury Bellwethers 10 Yr. Index is an unmanaged index representing the on-the-run (most recently auctioned) U.S. Treasury bond with 10 years’ maturity. The ICE BofA All Capital Securities Index is designed to replicate the total return of a diversified group of investment-grade preferred securities. The Credit Suisse Leveraged Loan Index is designed to mirror the investable universe of the $US-denominated leveraged loan market.

Important information on risk
Investing involves risk; principal loss is possible. Different types of asset investments have different types of risks, which may provide higher returns but also greater volatility. Income is only one component of performance and an investor should consider all of the risk factors for each asset class before investing. Except in certain circumstances, income is generally subject to both federal and state taxes. Fixed income securities may be susceptible to general movements in the bond market and are subject to credit and interest rate risks. Credit risk arises from an issuer’s ability to make interest and principal payments when due, as well as the prices of bonds declining when an issuers credit quality is expected to deteriorate. Interest rate risk occurs when interest rates rise causing bond prices to fall. The value of, and income generated by, debt securities will decrease or increase based on changes in market interest rates. Government bonds are guaranteed as to the timely payment of principal and interest. However, there are other factors that can contribute to how securities react in various interest rate environments. Below investment grade or high yield debt securities are subject to heightened credit risk, liquidity risk and potential for default. The issuer of a debt security may be able to repay principal prior to the security’s maturity, known as prepayment (call) risk, because of an improvement in its credit quality or falling interest rates. In this event, this principal may have to be reinvested in securities with lower interest rates than the original securities, reducing the potential for income. Senior loans may not be fully secured by collateral, generally do not trade on exchanges, and are typically issued by unrated or below-investment grade companies, and therefore are subject to greater liquidity and credit risk. Preferred securities are subordinate to bonds and other debt instruments in a company’s capital structure. They combine the features of bonds and stocks, and have credit risk based on the issuer’s ability to make interest and dividend payments when due. Certain types of preferred, hybrid or debt securities with special loss absorption provisions, such as contingent capital securities (CoCos), may be or become so subordinated that they present risks equivalent to, or in some cases even greater than, the same company’s common stock. Asset-backed and mortgage-backed securities are subject to additional risks such as prepayment risk, liquidity risk, default risk and adverse economic developments. Concentration in specific sectors may involve greater risk and volatility than more diversified investments.