Összegzés
Executive Summary
We believe that in 2025 the European leveraged loan market will broaden its appeal to investors as a significant asset class to consider. While it has been well established in the US, it has grown significantly in recent years in Europe, with its market size currently close to that of the European high yield bond market. We expect this growth trend to continue, driven by robust demand from private equity firms, as they continue to view this type of credit as a flexible source of capital to support leveraged buyouts and M&A activity. We believe that European leveraged loans deserve to attract a higher degree of focus from institutional investors, given it is an asset class that stands out as an attractive source of returns and portfolio diversification.
In an uncertain environment characterised by elevated geopolitical risks, tariffs, large fiscal deficits and continued inflation uncertainty, we believe leveraged loans provide investors with an alternative source of diversification that has historically delivered stable performance across different phases of the cycle. Loans have historically shown less volatility compared to other fixed income assets, thanks to their low sensitivity to interest rates (given their floating rate structure) and a more stable investor base. Compared to high yield bonds, loans have a similar trading liquidity, but require a longer settlement period and have a slightly lower rating profile.
Looking ahead, we believe the outlook for leveraged loans remains supportive, and is backed by three main favourable factors. First, European leveraged loans offer relatively attractive yields in the fixed income space. Second, the default outlook for leveraged loans remains benign for 2025. Although economic growth is lacklustre and interest rates are relatively high, the default level has been dampened by interest rates starting to trend lower, and frequent refinancings taking place. Last, in a world of concerns about higher for longer rates, investor demand for floating rate leveraged loans is set to remain high.
With regards to their role in portfolio construction, they are an interesting diversifier to consider, in our view. The exposure of the European leveraged loan asset class is mainly in defensive sectors, and thus it is complementary to that of the high yield bond market. Furthermore, they are among the few diversifiers which are resilient to higher inflation (floating rates), which contributes to a relatively low level of return volatility and weak correlation with other asset classes. Long-term historical analysis shows that an allocation to European leveraged loans would have helped to enhance the overall risk-adjusted returns of a European balanced portfolio. We believe that moving forward, there is room for an increasing role for leveraged loans in investors’ portfolios.
Read more
