When interest rates are low, some investors stretch for yield by taking on credit risk. At the same time, many investors are also seeking alternative ways to protect themselves against a potential rise in interest rates, without sacrificing that hard-earned yield.
These dual concerns have led many to consider bank loan funds, which recently have had more inflows than any other domestic fixed-income asset class.
Other Than Recent Returns, What Makes Bank Loan Funds So Popular?
Bank loans, a type of corporate debt, have a maturity date and pay interest. Their interest payments, however, are determined based on a floating reference rate (typically Libor) plus a fixed spread. Depending on the loan agreement, the rate is adjusted periodically, typically at intervals of 30, 60 or 90 days.
Read the rest of the article on ETF.com.