As today’s investment environment continues to evolve, many fixed-income investors may find themselves dreaming of the bond markets of the 1970s, 80s, and 90s. These markets were particularly “nice” as they paid high yields thanks to sky-high interest rates.
However, today’s environment may seem more like a nightmare. After 30 years of falling interest rates, they are finally starting to increase, with no signs of slowing down.
As a result, many fixed-income investors are facing a dilemma. Even as interest rates rise, bonds are still paying historically low yields, leaving investors needing more to reach their income goals. And bonds of tomorrow have the potential to pay much higher yields if rates continue to increase. This leaves investors to ponder whether they should hold their current bonds to maturity and limit their upside potential in a higher-yielding bond-market, or sell off their current bonds at a loss, possibly eroding principal.
Do not be frightened, there are solutions
One potential solution – floating rate assets, more specifically, senior secured loans. Senior secured loans are debt obligations generally issued by non-investment grade businesses. What makes these loans different? Senior secured loans pay interest at a floating rate that typically resets every 90 days, potentially helping investors earn incremental income as rates rise. And while investors participate in the income upside, in many cases, they will also be protected from the downside risk. That is because 90 percent of loans have a floor, helping to insulate them from a freefall if rates start to drop. It may sound too good to be true, but a loan’s floor provides a minimum level of income no matter where rates stand.
Resource1 – an alternative asset management firm with corporate credit experience
Resource has an extensive track record in the corporate credit market. It leverages its intellectual capital across numerous credit-focused entities in an effort to provide both institutional and retail investment opportunities, managing approximately $24 billion of credit investments. Currently, Resource offers investors a professionally, managed, fixed-income credit strategy, the Resource Credit Income Fund (the “Fund”). The Fund is a closed-end interval fund, which focuses on an allocation to floating-rate assets, and aims to capture opportunities across the credit universe.2
Is this the solution fixed-income investors have been searching for?
Floating-rate assets like senior secured loans have produced consistent income through various interest rate cycles, and may help investors build a more-resilient fixed-income portfolio as the current investment environment evolves. So as rates continue to rise, and fixed-income investors face increased challenges, senior secured loans may provide an alternative income solution with downside protection.
To learn more about Resource and their fixed-income solutions, call (866) 773-4120 or visit www.ResourceAlts.com.
Resource is a sponsor of The DI Wire, and the sponsored article was published as part of their standard directory sponsorship package.
- Resource is the marketing name for Resource Alternative Advisor, LLC and its affiliates.
- There is no guarantee that the Fund will achieve its objectives, generate profits, or avoid losses. The Fund is also subject to financial market risks, including changes in interest rates. Because the Fund may use debt to finance investments, changes in interest rates may have a material adverse effect on the Fund’s net investment income.