With federal reserve hikes incoming, money managers are looking for assets that will grow with the hikes. They believe the answer might be in some of the year’s biggest leveraged loans. Yet, according to a report by Bloomberg, some warn that investors may be buying at the wrong time.
Typically, when the fed tightens money supply the loan market doesn’t respond well according to Gershon Distenfeld. Distenfeld the co-head of fixed income at AllianceBernsteinLP, said in bloomberg article “after the Fed tightens the money supply, economic growth slows, which results in more defaults on corporate debt and lower returns for the whole loan market. ” According to Distenfeld and others now is not the time to buy but, whether or not that is fact hasn’t deterred a large amount of money managers from buying them. Consistent growth at 3.8% this year and Companies like Blackstone borrowing billions of dollars in the U.S. could be the cause of this current surge in interest. The growth in this could come to a end and the end of the year due to a decrease in loans be issued according to Neil Desai, A Portfolio Manager at Highland Capital Management. With warnings issued this could be fools gold. If you do chose to invest in this exercise caution.