In today’s market environment, investors are faced with the challenge of seeking attractive current income without reaching for risk. To solve for this, we seek to unearth investment solutions offering higher yields and diversification for Australian investors’ portfolios within the more senior, higher quality segments of the corporate debt and alternative credit markets.
In this article, we examine the attractive attributes of an allocation to liquid alternative credit; specifically, why we believe collaterised loan obligations (CLOs) investing offers a compelling investment grade opportunity and how a dynamic, flexible approach can capture value across various market environments.
LIQUID ALTERNATIVE CREDIT
Investment grade credit is not limited to traditional corporate bonds, as liquid alternative credit also offers products rated triple-B or higher, including CLOs and real estate debt securities. As many investors struggle to find attractive income solutions in today’s market environment, we believe certain liquid alternative credit asset classes, specifically CLO debt securities, screen attractively as they offer a yield premium relative to similarly rated corporate debt. As of
30 June, 2021, that premium was 200bps for triple-B rated debt.
In addition to attractive yields, CLOs offer protection against both rising interest rates and inflation due to their low duration of less than one year. From a...