Relative value currently favors floating-rate loans over high-yield bonds.
Strong outperformance has brought high-yield bond yields below floating-rate loans. Since 2010, high-yield bonds have averaged a yield about 1% higher than floating-rate loans, given their lower position in the capital structure and greater downside risk. However, high-yield bond yields are now 0.58% below floating rate loans. With yields now favoring floating-rate loans and with current default rates of 1.01%, investors can improve their position in the capital structure of a company, and may reduce downside risk and volatility by considering loans over bonds. Combined with limited duration risk for floating-rate loans, Pacific Funds portfolio managers believe this provides a favorable relative-value advantage for floating-rate loans over high-yield bonds in the near term.
Past performance does not guarantee future results.
Navigating this Environment with Pacific FundsSM
Pacific Funds offers fixed-income funds that are carefully constructed using a combination of investment-grade corporate bonds, high-yield bonds, floating-rate loans, and short-term debt securities. The portfolio management team stays true to its strength as corporate income specialists by researching individual securities and investing across the credit spectrum. Pacific FundsSM Floating Rate Income and Pacific FundsSM Strategic Income have the flexibility to adapt to changing market conditions by adjusting its asset mix to better reflect the investment team’s views on market segments and the interest-rate environment.
Asset-class mix as of March 31, 2019.
The Bloomberg Barclays U.S. Corporate High-Yield Bond Index measures the USD-denominated, high-yield, fixed-rate corporate bond market.
The Credit Suisse Leveraged Loan Index is designed to mirror the investable universe of the U.S. senior secure credit (leveraged loan) market.
Effective yield is the yield of a bond, assuming the periodic interest payments or coupons received are reinvested.
Duration is often used to measure a bond’s or fund’s sensitivity to interest rates. The longer a fund’s duration, the more sensitive it is to interest-rate risk. The shorter a fund’s duration, the less sensitive it is to interest-rate risk
Yield to worst is the lowest potential yield that can be received on a bond without the issuer actually defaulting.
Important Notes and Disclosures
All investing involves risk including the possible loss of the principal amount invested. Past performance does not guarantee future results, ensure a profit or protect against loss. There is no guarantee the Funds will achieve their investment goals. Debt securities with longer durations or fixed interest rates tend to be more sensitive to changes in interest rates, making them generally more volatile than debt securities with shorter durations or floating or adjustable interest rates. The Funds are subject to liquidity risk (the risk that an investment may be difficult to purchase and sell within a reasonable amount of time at approximately the price the Fund has valued the investment) and credit risk (the risk an issuer may be unable or unwilling to meet its financial obligations, risking default). Floating-rate loans (usually rated below investment grade) and high-yield/high-risk bonds (“junk bonds”) have greater risk of default than higher-rated securities/higher-quality bonds that may have a lower yield. Interest rates and bond prices have an inverse relationship. The Funds are also subject to foreign-markets risk.
All share classes may not be available at all firms, and not all investors may be eligible for all share classes. Please see the prospectus for additional information about availability.
Pacific Life Fund Advisors LLC (PLFA), a wholly owned subsidiary of Pacific Life Insurance Company, is the investment adviser to the Pacific Funds. PLFA also does business under the name Pacific Asset Management and manages certain funds under that name.
Pacific Life Insurance Company is the administrator for Pacific Funds. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.
You should consider a fund's investment goal, risks, charges, and expenses carefully before investing. The prospectus and/or the applicable summary prospectus contain this and other information about the fund and are available from your financial advisor. The prospectus and/or summary prospectus should be read carefully before investing.
Mutual funds are offered by Pacific Funds. Pacific Funds are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company (Newport Beach, CA), and are available through licensed third parties. Pacific Funds refers to Pacific Funds Series Trust.