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Rathbones to bank on senior secured loans

Rathbones multi-asset manager David Coombs says he is holding senior secured loans funds in Rathbone strategic growth because interest rates can only go up.

Interest rate rises are negative for corporate bonds, as their fixed coupons start looking unattractive relative to the level of risk being taken.

Unlike corporate bonds, interest rates on secured loans are linked to Libor. They are attractive when interest rates rise, as coupons also rise.

To gain exposure to senior secured loans, Coombs holds Neuberger Berman’s global floating-rate fixed-income fund and Harbourvest senior loans Europe.

The Neuberger Berman fund invests in around 100 senior secured loans of big companies in the US and Europe. Coombs says it invests mainly in the US, which is a deeper and liquid market.

The Harbourvest portfolio invests in senior secured loans of private equity-backed, medium-sized European companies. Coombs says Harbourvest has the skill to look at capital structures and loans, which gives it an edge.

Harbourvest was an opportunistic addition for Rathbone. Coombs bought the original shares on the secondary market at a lower price than the new C shares that were being marketed to investors.

Coombs prioritises the potential macroeconomic risks that could have an impact on asset allocation. He sees three main risks – Greece defaulting on its sovereign debt obligations, too many investors piling into emerging markets and conventional gilts being overbought at a time when inflation is a concern.

He says: “There is a risk we will have inflation scares so we want to be in floating-rate, not fixed-rate assets.”

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