Do Bank Loan Funds Protect Investors from Duration Risk?
Bank Loan Funds (BLF’s) are a mutual fund asset class that buys corporate loans from banks. They have a higher seniority than bonds during bankruptcy so they are sometimes called “senior secured loans”. The big thrill about this asset class is that they allegedly have no duration risk which is the risk of being hurt by rising interest rates, since the contract specifies that the rate is adjustable on a monthly or quarterly basis. Investors worry that rates are too low and could explode upwards, which would damage the value of long term bonds. Thus owning a Note …
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