Frank Ossino, sector manager of bank loans, discusses the opportunities and areas of concern as we enter 2021.
Opportunity – Despite a valuation that appears fair to long-term averages, we remain constructive on the asset class into 2021 and can see a coupon-plus type total return next year given the existing discount to par and yield enhancement provided by the reemergence of LIBOR floors in new transactions. The containment of the virus, and ultimately the development of a vaccine, continue to be the determining factors in the prospects for bank loans as well as other risk assets. The size and scope of additional stimulus, which is a necessary bridge to a vaccine, is another key variable. With the Fed and global accommodation providing support, we believe the case for bank loans can be made for income in a lowyield environment. The income pickup relative to other income asset classes provides a strong rationale for exposure to the space.