Five reasons European investors should not overlook U.S. senior loans

U.S. senior loans, also known as broadly syndicated loans, floating rate loans or bank loans, have shot into prominence since the U.S. Federal Reserve began hiking rates in 2022. Investors have taken notice of the attractive returns and remarkably low volatility provided by the asset class. While this market has grown to $ 1.4 trillion in size, it remains relatively misunderstood and under-owned by investors. In this piece, we provide five compelling reasons loans deserve a seat at the strategic asset allocation table for European investors.

Key takeaways

• When looked at from a yield per duration perspective, U.S. senior loans have one of the highest yields in fixed income coupled with very low sensitivity to interest rates.
• In addition to compelling risk-adjusted returns, U.S. senior loans bring diversification benefits to portfolios due to their lower correlations to other major asset classes.
• Contrary to widely held perceptions that loans only generate attractive returns in rising rate environments, they can also add value even when rates fall.
• One of the most important attributes of U.S. senior loans is liquidity. Funds that invest in loans can offer daily or weekly liquidity to underlying investors.
• At $1.4 trillion, U.S. senior loans can hardly be classified as niche.