Bank loans: A history of consistent returns

Bank loans: A history of consistent returns

Bank loans and floating rate securities may be attractive in periods of rising interest rates due to their minimal duration and variable income features. US Treasury yields have spiked by 75 basis points or more 16 times since 1998, and in each case, bank loans had positive performance during that period.

Looking beyond specific periods of rising rates, bank loans have shown consistency in performance. Since the 1997 inception of the S&P/LSTA Leveraged Loan Index, the index has posted only 2 calendar years of negative performance as shown on the chart below. Over the same period, the S&P 500, Bloomberg US Aggregate, Bloomberg US Corporate, and Bloomberg US High Yield index all have additional negative return calendar years. On a quarterly basis, the Index had positive returns over 80% of quarters throughout the past 20 years.

S&P/LSTA Leveraged Loan Index

S&P/LSTA Leveraged Loan Index

Source: Morningstar, June 2022. Past performance is not a guarantee of future results. Investing involves risk, including the possible loss of principal.

Bank loans: The S&P/LSTA Leveraged Loan Index

What this means for investors

Bank loans have a long history of positive annual total returns and can be an option for investors looking to add credit risk to their portfolios. In the current market environment, we stress the need for active management and fundamental bottom-up research. The bank loan market is susceptible to periods of inefficiency in which there will be likely winners and losers in the leveraged loan space. A disciplined approach to research, risk management and a focus on liquidity are all necessary to navigate the current inflationary environment and interest rate pressures on credit markets


Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

Nothing presented should be construed as a recommendation to purchase or sell any security or follow any investment technique or strategy.

The views expressed represent the investment team’s assessment of the market environment as of [06/01/2022], and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice.

Market risk is the risk that all or a majority of the securities in a certain market – like the stock market or bond market – will decline in value because of factors such as adverse political or economic conditions, future expectations, investor confidence, or heavy institutional selling.

Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.

Charts shown throughout are for illustrative purposes only and not meant to predict actual results.

Chart is for illustrative purposes and is not representative of the performance of any specific investment.

The S&P/LSTA (Loan Syndications and Trading Association) Leveraged Loan Index is a broad index designed to reflect the market-value-weighted performance of US dollar-denominated institutional leveraged loans.

The Bloomberg US Aggregate Index is a broad composite that tracks the investment grade US bond market.

The Bloomberg US Corporate High-Yield Index is composed of US dollar-denominated, non-investment-grade corporate bonds for which the middle rating among Moody’s Investors Service, Inc., Fitch, Inc., and Standard & Poor’s is Ba1/BB+/BB+ or below.

The Bloomberg Barclays US Corporate Investment Grade Index is composed of US dollar-denominated, investment grade, SEC-registered corporate bonds issued by industrial, utility, and financial companies. All bonds in the index have at least one year to maturity.

The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value and is often used to represent performance of the US stock market.