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ETF Specialist

Should You Consider Floating-Rate Bank Loans Today?

With the potential for higher interest rates in the future, the bank-loan market still looks attractive.

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Back in October 2012, I wrote an article titled "Are Bank-Loan Funds Ready to Be Loved Again?" in which I discussed the potential benefits of bank-loan funds--particularly in the context of a period of rising interest rates. If you're unfamiliar with the bank-loan sector, take a peek at that article before reading on.

In my previous piece I noted that bank loans have tended to have low average default rates versus high-yield bonds, above-average yields, and very low duration (given that they pay floating rates), are negatively correlated to Treasury bonds, and have historically generated above-average returns in rising interest-rate environments. All of these features are still valid today.

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Timothy Strauts does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.