FOR INSTITUTIONAL INVESTOR USE ONLY

This site is for Institutional Investor use only and not for public use or distribution. The information contained on this site is for informational purposes only without regard to the investment objective, financial situation or specific needs of any particular investor. It is not intended for use by institutional investors in a jurisdiction where distribution or purchase is not authorized.

An “Institutional Investor” means any:

  • bank, savings and loan association, insurance company or registered investment company;
  • investment adviser registered either with the SEC under Section 203 of the Investment Advisers Act or with a state securities commission (or any agency or office performing like functions);
  • person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million;
  • governmental entity or subdivision thereof;
  • employee benefit plan, or multiple employee benefit plans offered to employees of the same employer, that meet the requirements of Section 403(b) or Section 457 of the Internal Revenue Code and in the aggregate have at least 100 participants, but does not include any participant of such plans;
  • qualified plan, as defined in Section 3(a)(12)(C) of the Exchange Act, or multiple qualified plans offered to employees of the same employer, that in the aggregate have at least 100 participants, but does not include any participant of such plans;
  • FINRA member or registered person of such a member; or
  • person acting solely on behalf of any such institutional investor.

By accessing this site you confirm that you are an Institutional Investor, you agree not to forward or make the contents of this site available to any person who is not an Institutional Investor, and you agree to be subject to Victory Capital’s user agreement

Redirect me to VCM.com

Thank you for your interest in Victory Capital Management. To download this document, please complete the registration form below. You will only need to complete this form one time to access site content.






  • Victory Capital may use my email to send out periodic news, announcements, and product information.

*All fields are required
Submit

Don't be so sensitive

Sure, interest rates are low in a historical context, but as of mid-September 10-year Treasuries were once again looking to top (and stay above) 3%. And thanks to the recent robust job numbers, the real questions are not if the Fed will continue tightening, but rather how much further and how fast.
Are you positioning properly
Given that backdrop, investors are right to revisit their fixed income allocations. Will bonds continue to play their traditional role in an overall investment portfolio? And if so, how should investors allocate their fixed income budgets?

For clues, investors may wish to look at duration. Duration is defined as a measure of interest rate sensitivity—the longer the duration, the more sensitive the investment is to shifts in interest rates and the greater its potential for losses in periods of rising rates. Floating rate bank loans may provide attractive risk-reward tradeoffs as evidenced by duration. 

As their name suggests, floating-rate bank loans are variable-rate loans made by financial institutions, generally to non-investment grade companies. Unlike most fixed income instruments, they can help balance an overall portfolio’s exposure to rising interest rates, providing greater price stability when compared with longer-term fixed interest rate bonds. This is due to their variable-rate yields, which adjust periodically, typically every 90 days, to mirror changes in market interest rates.

Moreover, bank loans are often ranked senior in a company’s capital structure, which means that, in the event of a default, bank loans are typically senior to bonds, convertibles, stock and other unsecured claims. In other words, these loans have priority for repayment and access to collateral.

Of course, there is no free lunch, and investors should always be aware of the risks associated with this asset class, including credit and liquidity. In fact, some common push-back comes from investors who wonder whether they are simply replacing duration risk with credit risk. That may be a viable concern given that bank loans are often below investment grade. Yet an active manager with deep credit research capabilities may be able to mitigate that risk by avoiding industries and individual companies with deteriorating balance sheets and higher risks of default. An active manager can also reject investments with inadequate liquidity.

All investments carry risks, but at a time when interest rate risk is increasing, investors should remember that floating-rate bank loans, which can offer attractive yields, are among the few fixed income assets that have the potential to maintain or increase in value in a rising rate environment. From this perspective, bank loans may prove helpful in structuring a fixed income portfolio.


 
Index definitions

1 Morningstar Bank Loan: Bank loan portfolios primarily invest in floating rate bank loans instead of bonds. These portfolios have credit risk and limited duration risk. The Morningstar Category Average is the average duration and average 30-day SEC yield for the peer group based on the durations and 30-day SEC yields of each individual fund within the group, for the period shown.

2 Morningstar High Yield Bond: High yield bond portfolios concentrate on lower quality bonds, which are riskier than those of higher quality companies. The Morningstar Category Average is the average duration and average 30-day SEC yield for the peer group based on the durations and 30-day SEC yields of each individual fund within the group, for the period shown.

3 Morningstar Intermediate Government Bond: Intermediate-government portfolios have at least 90% of their bond holdings in bonds backed by the US government or by government-linked agencies. The Morningstar Category Average is the average duration and average 30-day SEC yield for the peer group based on the durations and 30-day SEC yields of each individual fund within the group, for the period shown.

4 Morningstar Intermediate-Term Bond: Intermediate-term bond portfolios invest primarily in corporate and other investment grade US fixed income issues and typically have durations of 3.5 to 6.0 years. The Morningstar Category Average is the average duration and average 30-day SEC yield for the peer group based on the durations and 30-day SEC yields of each individual fund within the group, for the period shown.

5 Morningstar Multisector Bond: Broad bond portfolios that typically invest assets among several fixed-income sectors, including government bonds, corporate bonds, high-yield bonds and foreign bonds. The Morningstar Category Average is the average duration and average 30-day SEC yield for the peer group based on the durations and 30-day SEC yields of each individual fund within the group, for the period shown.
 
An investor should consider a fund’s investment objectives, risks, charges and expenses carefully before investing or sending money. This and other important information about funds can be found in the fund’s prospectus, or, if applicable, the summary prospectus. To obtain a copy, visit the ETF prospectus page or Mutual Fund prospectus page. Read a prospectus carefully before investing.

Investments involve risk including possible loss of principal. The value of the equity securities in which the fund invest may decline in response to developments affecting individual companies and/or general economic conditions. Dividends are never guaranteed. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty, and greater volatility. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. You may lose money by investing. There are no guarantees the funds will achieve their investment objectives and strategies may be unsuccessful.

ETFs have the same risks as the underlying securities traded on the exchange throughout the day. Redemptions are limited and often commissions are charged on each trade, and ETFs may trade at a premium or discount to their net asset value. There can be no assurance that an active trading market for shares of an ETFs will develop or be maintained. The ETFs are not actively managed and may be affected by a general decline in market segments related to the Indexes. The ETFs invest in securities included in, the Index, regardless of their investment merits. The performance of the ETFs may diverge from that of the Indexes. 

LinkedIn, Twitter, and any other social media platform are owned by third parties unaffiliated with Victory Capital. Victory Capital is not responsible for the privacy or security policies at these sites or other third party sites to which they provide further links. For Victory Capital’s privacy policy, please visit the Policies page on www.vcm.com. Please do not post any information you wish to keep private on this page.

Victory Capital does not endorse and is not responsible for any ads, content, products, advice, opinions, recommendations or other material of third party sites that may be promoted via advertising within social media properties.

This material does not constitute a distribution, offer, invitation, recommendation, or solicitation to sell or buy any securities; it does not constitute investment advice and should not be relied upon as such.  Investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

Mutual funds distributed by Victory Capital Advisers, Inc. ("VCA"). ETFs distributed by Foreside Fund Services, LLC. Victory Capital Management Inc. is the adviser to the VictoryShares ETFs and Victory Funds. Victory Capital is not affiliated with Foreside Fund Services, LLC.

Nasdaq is a registered trademark of Nasdaq, Inc. and its affiliates (together,“Nasdaq”) and is licensed for use by Victory Capital. The product(s) are not issued, endorsed, sold, or promoted by Nasdaq. Nasdaq makes no warranties as to the legality or suitability of, and bears no liability for, the product(s). Nasdaq is not affiliated with a fund or advisor.

For specific questions about your account or other customer-service related inquiries, please contact Victory Capital directly.