The Case for Bank Loans
Pacific Asset Management, February 2017
Join Pacific Funds Fixed Income portfolio managers JP Leasure, Michael Marzouk, and senior director of business development Michael Spitler as they discuss the case for bank loans.
Describe the investment approach to managing Pacific Funds Floating Rate Income.
JP Leasure: "Our bank loan Strategy seeks to outperform its benchmark through a selective and nimble approach. The portfolio managers of our fund have worked together for nearly a decade. We construct a portfolio of around 100 companies and invest in bank loans issued by companies where we have a strong degree of understanding of their business, fundamentals, and downside risk."
What makes your approach to managing a bank loan fund different from other managers?
Michael Spitler: "Three factors differentiate our approach to bank loans: our large company focus, selectivity, and downside risk emphasis. First, we are a large-cap bank loan manager. We focus on larger companies as we believe their attributes provide downside risk protection and a margin of safety relative to smaller and less liquid companies. Second, we are selective, believing security selection helps drive returns. Because of this selective approach, a distinction in our investment philosophy is our ability and willingness to not hold many companies we do not believe present relative value. Third, we emphasize a goal of capital protection. We actively seek to avoid defaults through an underwriting process focused on understandable and transparent companies."
Describe your positioning in Pacific Funds Floating Rate Income.
Michael Marzouk: "Pacific Funds Floating Rate Income is focused on several investment themes. We emphasize mostly U.S.-centric companies with strong balance sheets we feel are well positioned for the current environment. We are also focused on the performing segment of the bank loan market with limited exposure to distressed issuers, which we would define as loans with a dollar price of below ninety."
JP Leasure: "In summary, we believe we may see a favorable performance outlook for bank loans given growing relative value, limited duration risk, and a technical backdrop providing relative insulation from market volatility."
All investing involves risk, including the possible loss of the principal amount invested. As with any mutual fund, the value of the funds' holdings will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. 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. Floating-rate loans are usually rated below investment grade and thus are subject to greater risk of default than higher-rated securities. High-yield/high-risk bonds have greater risk of default than higher-quality bonds that may have a lower yield. The Fund is also subject to other risks including, but not limited to, liquidity risk, emerging/foreign markets risk, and credit risk. Please see the prospectus for details on these and other risks associated with Pacific Funds Floating Rate Income.
This commentary represents the views of the portfolio managers at Pacific Asset Management through 11/18/2016, and is presented for informational purposes only. These views should not be construed as investment advice, an endorsement of any security, mutual fund, sector or index, or to predict performance of any investment. No forecasts are guaranteed. All material is compiled from sources believed to be reliable, but accuracy cannot be guaranteed. The opinions expressed herein are subject to change without notice as market and other conditions warrant. Sector names in this commentary are provided by the Fund’s portfolio managers and could be different if provided by a third party.
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 or www.PacificFunds.com. The prospectus and/or summary prospectus should be read carefully before investing.
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Pacific Funds Floating Rate Income is 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.
No bank guarantee • May lose value • Not FDIC insured