Looking beyond Fed moves: why floating rate funds remain compelling
Bank loans may offer resilient returns despite a shifting rate environment.
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Where We Have Conviction: High-Quality Credits
Favoring senior secured loans of companies with stable cash flows, manageable maturities, and business models we believe can perform well through a slower economy.
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Key Takeaways
- Eric Mollenhauer, portfolio manager of Fidelity Floating Rate High Income, says the interest rate environment remains supportive for floating-rate securities (i.e., leveraged loans or bank loans).
- At the start of the fourth quarter, current yields on leveraged loans are at roughly 8%, which is higher than most other income alternatives, but Mollenhauer notes that credit spreads are not especially wide, so investors need to stay focused on resilient borrowers that can withstand a potentially slower growth environment.
- Mollenhauer says artificial intelligence is a major focus of his work as a portfolio manager, and he's been monitoring the technology's impact on software companies, a sizable component of the leveraged loan market ands the fund.
- In terms of investment themes in the portfolio, Mollenhauer says he is optimistic about opportunities to finance the build-out of data centers that help power the functionality of AI capabilities, and the fund has lent funds to some of the largest companies involved.
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Views expressed are as of the data indicated, based on the information available at that time, and may change based on the market and other conditions. Unless otherwise noted, the opinions provided are those of the authors and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.
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