Morningstar, Inc. Commentaries
Apr 11, 2014
Click here to access This Bank-Loan Fund Is a Standout
Few asset classes have received as much attention lately as bank loans (also known as senior loans or floating-rate loans). In the past 12 months, $54 billion has flown into the open-end bank-loan category as income-seeking investors look for protection against a potential rise in interest rates. As we've discussed before, senior loans pay interest to investors based on a floating rate that is generally reset quarterly. That rate is based on a reference index or rate (usually Libor) plus a spread, which is generally determined based on the credit risk of the portfolio's underlying assets. So, in a rising-rate environment, floating-rate loans should pay investors more income.