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Public Fixed Income

The (Still) Compelling Case for Broadly Syndicated Loans

January 2024 – 4 min read

Even as the rate-hiking cycle looks close to its end, loans look well-positioned for strong performance in the year ahead, due largely to the high contractual income on offer.

As an asset class that pays investors a floating-rate coupon, broadly syndicated loans have historically outperformed in rising-rate environments—and the asset class certainly benefitted from that backdrop over the past two years. Now that the rate-hiking cycle may be reaching its end, however, there are questions as to whether this strength can continue. We believe it can, due largely to the contractual income currently on offer, which continues to hover around its peak post-financial crisis highs.

Strong Performance Amid Rising Rates

The loan market outperformed other fixed income asset classes in each of the last two years, as central banks steadily increased rates to combat inflation. In 2022, while performance was negative—which had previously only happened twice in the U.S. and three times in Europe—the loan market showed significant resilience relative to other fixed income markets due to its lower price sensitivity to increases in interest rates (Figure 1). Heading into 2023, the asset class was armed with a much higher coupon which, along with some modest price recovery, allowed it to quickly recapture the negative results of 2022 and outperform other markets for a second consecutive year.

Figure 1: Loans Have Outperformed Other Fixed Income Asset Classes

the-still-compelling-chart1.jpgSources: Sources: Credit Suisse; J.P. Morgan; Bloomberg. As of December 31, 2023. Returns are hedged to USD.

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Natalie Heawood, CFA

Managing Director

Casey McKinney

Managing Director

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any forecasts in this document are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Any investment results, portfolio compositions and/or examples set forth in this document are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this document. No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments.

Investment involves risks. Past performance is not a guide to future performance. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

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