Bank Loan Funds Are a Dumb Investment
- Bank loan funds contain illiquid investments making them vulnerable in market panics.
- Bank loan funds have not meaningfully outperformed investment grade bonds.
- Bank loan funds floating interest rates may not protect investors from rising rates due to “LIBOR floor” clauses.
Bank loan funds (also called leveraged loans or senior loans) that invest in bank loans are a relatively recent creation of Wall Street and have gained in popularity because of their combination of high yields and promised protection against rising interest rates. A prudent investor, however, should stay far away from bank loan funds. This article was published exclusively on SeekingAlpha.com and you can read more there by following the link.