30 min read 24 Feb 21
Summary: The loan market is one of the few areas of fixed income still offering meaningful yield and consequently we believe the asset class will continue to attract investor interest in 2021. The case for cautious optimism hinges on successful vaccine rollouts in H1 as the pandemic rages, but there are numerous risks ahead, including policy mis-steps and virus mutations, so bouts of market volatility are possible.
While the worst predictions of corporate distress made last year were unfounded thanks to extensive liquidity support, including from PE owners, elevated default risk must be navigated in 2021. The European loan market’s natural sectoral distribution should help insulate the asset class somewhat, meaning that most companies should emerge from the crisis with their business models, valuations and market positions intact.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested.