Time to pay attention to bank loan: investor

Eastspring Asset Management Chief Marketing Officer Alex Ye / Courtesy of Eastspring Asset Management

By Naｍ Hyun-woo

This is the time for investors to turn their eyes to bank loan trusts amid growing expectations that the U.S. Fed may raise its key rate in June, said Alex Ye, chief marketing officer of Eastspring Asset Management.

“Unlike general bonds, a bank loan is a product with variable rates, meaning a potential rate raise will bring higher interest gains compared to other bond assets,” the veteran asset manager said in an e-mail interview with The Korea Times. “Given the nature of the investment in a bank loan, it bears significant meaning for investors in the current trend of low interest rates.”

A bank loan here refers to any loans given to companies whose credit rating assigned by Standard and Poor’s is below BBB-. Since companies have to repay their loans prior to other types of debts, it is less volatile and relatively stable.

“According to the minutes of the Federal Open Market Committee, the majority of Fed members suggested that a key rate raise in June could be appropriate if the current upturn in economic growth, the labor market and inflation continues,” said Ye.

“Most of them agree that the crisis in the financial markets has been eased, but at the same time some participants noted that global financial markets could be sensitive to the upcoming British referendum on membership in the European Union or to unanticipated developments related with China’s management of its exchange rate.”

He stressed that this forces asset managers including himself to believe this is the time to pay keen interest in the timing of the Fed’s key rate raise.

One of the asset management companies swift enough to do this is Eastspring Asset Management. Starting as Good Morning Investment Trust Management in 2001, the company embraced Prudential Corporation as its main shareholder in 2002 and was rebranded as Eastspring Asset Management in 2012.

In the four years since then, the company became one of the much-touted names in the domestic asset management market, with its European Leaders Fund making headlines after posting a 5.84 percent gain in a three-month return rate (class A) as of April. It was the highest among similar funds in the circuit.

“We invest in competitive companies which can generate long-term shareholder value,” said Ye. “That’s the principle of all our investments.”

He stressed that investors should seek funds with steady performance. “Investing in a fund is similar to compounding interest,” he said. “Profits created from a fund are invested into the fund again. Should such a trend be sustained over the long term, the amount of the investment will increase dramatically.”

He cited the story of Peter Lynch, one of the greatest investors in history. As manager of Magellan Fund he averaged a 29.2 percent annual return from 1977 to 1990. The total return during the period reached some 2,700 percent.

“Interestingly, Magellan never made the top position in annual returns during the 13-year period. This shows the power of time and compounding. Thus, the best fund for investors is one set up for longer than five to 10 years and the performance of which is steady enough to hover around 25 percent,” Ye said.