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Should Bank Loans Be a Strategic Allocation in Your Portfolio?

August 2019 
By David Marshak

Bank loans may be worth considering as a strategic allocation because they can add diversification, produce income, and have a history of positive returns.

David Marshak
Managing Director and Portfolio Manager of the Hartford Floating Rate and Hartford Floating Rate High Income Funds


We have long heard the debate as to whether bank loans should be a tactical or strategic allocation in client portfolios.  We think investors should consider the asset class as a strategic allocation for three reasons:

1. Diversification – Correlations with other fixed-income and equity asset classes are low, and in some cases negative 

2. Spread is key for income - In low LIBOR environments, income overwhelmingly comes from spread, not LIBOR

3. Power of compounding income – With only two negative return years in its 25-year history, the bank-loan asset class has demonstrated the ability to compound income year-after-year

Past performance is not a guarantee of future results. 

Important Risks: Investing involves risk, including the possible loss of principal.● Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. ● Loans can be difficult to value and less liquid than other types of debt instruments; they are also subject to nonpayment, collateral, bankruptcy, default, extension, prepayment and insolvency risks. 

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