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Low Duration Means Low Risk? Not Necessarily

To protect their portfolios from rising interest rates and volatility, many high-yield investors have headed for short-duration strategies. We think some of the more popular approaches may expose investors to bigger hazards than they realize.

It’s no secret that overall yields on high-yield bonds—and their yield advantage over government bonds—are near historic lows. That means investors receive below-average compensation for the risk they’re taking. And with the US Federal Reserve almost certain to start boosting official interest rates in 2015, the potential for those spreads to widen—and prices to fall—is high.

Still, even at today’s rich valuations, high-yield bonds offer more income than most fixed-income assets, making many bond investors reluctant to pull out of the sector altogether. Often, they choose short-duration funds. Short-duration bond prices are less sensitive to changes in interest rates than longer-duration bonds. Over time, short-duration high-yield bonds have generated returns close to those of the broader high-yield market with less volatility.

Shortening Duration: Easier Said Than Done

The most straightforward way to shorten—or reduce—duration is to buy bonds with shorter maturity dates. The problem is that there aren’t many actual short-maturity assets available out there. The typical high-yield bond is issued with a 10-year maturity, although many issuers can “call” the bonds much earlier by taking it back and paying the investor a specified price.

To get around this short-maturity shortage, one popular strategy has been to build exposure: buy high-yield bonds of any maturity and combine them with short positions in government bond futures contracts or interest-rate swaps, hedging much of the interest-rate risk. Contrary to popular belief, we think this approach can reduce returns and increase risk, particularly if there’s a broad sell-off in credit assets.

According to Barclays data, the US high-yield market has returned an annualized 7.5% since 1997 with 9.4% annualized volatility. Using interest-rate hedges on a similar portfolio over that period would have cut returns to just 1.8% while boosting volatility to 11.1% (Display).

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To be fair, this strategy underperformed largely because interest rates fell, and that lengthy period of low rates may well be ending. Many economists and market strategists expect US rates to climb in the years ahead. If that happens, those hedges would indeed enhance total returns.

Watch Out for the Double-Edged Sword
But here’s one thing that’s worth keeping in mind. Rates are likely to rise, but they may not rise quickly. And the potential for higher volatility could increase the risk of losses. That’s particularly true if the high-yield market were to hit a rough patch, prompting yield spreads to widen.

If there’s a credit selloff, investors tend to rush out of high yield and into government bonds and other higher-quality assets. This would cause government bond yields to fall, and investors could see both sides of their portfolios take a hit: the high-yield bonds would suffer and the interest-rate hedges would lose value as Treasury yields fell.

We think there’s a better approach to build a low-volatility high-yield allocation: buy individual bonds that do have short-term maturities and bonds that are likely to be called in the near future. This effectively shortens duration and provides the attractive return profile we described. We think it’s also important to avoid the riskiest credits. In a credit-sell-off, a short-duration portfolio that sidesteps these potential pitfalls is more likely to outperform the market.

Of course, this approach isn’t risk free. Once rates start to rise, an issuer may decide not to call its bonds when expected. In that scenario, investors would see the duration on their bonds grow at the worst possible time—we call this extension risk. One possible way to reduce this risk is to target bonds trading at prices well above their call prices. It would take a dramatic rate increase to keep the issuer from calling the bond—and we don’t think that’s likely.

Other strategies to reduce extension risk include using credit derivatives to replicate high-yield bonds, as these come without the call option built into most high-yield bonds. All of these approaches require careful security selection. But we think they’re likely to offer more effective protection against rising rates, higher volatility and the possibility of future credit market duress.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AllianceBernstein portfolio-management teams.

Ivan Rudolph-Shabinsky is a Portfolio Manager of Credit at AllianceBernstein

Consumers in Emerging Markets: Identifying the Consumer Staples Companies Poised to Benefit

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Morningstar has published its latest Consumer Observer research report, this time exploring the growth potential of consumer staples companies with exposure to emerging markets. In its report, “Investing in the Emerging Market Consumer—Why Companies with Moats are Poised for Outsized Returns,” Morningstar equity analysts found that companies with economic moats, or sustainable competitive advantages—more specifically, companies with brand portfolios across multiple pricing tiers and expansive distribution networks—are best positioned to monetize consumer demand in emerging markets.

Morningstar analysts identified the following consumer staples companies as poised to benefit from positive growth trends in emerging markets: Ambev, Coca-Cola, Diageo, ITC, Philip Morris International, Unilever, United Breweries, Wuliangye Yibin, and Yum Brands.

“Population growth, private investment, and urbanization are all conducive to creating wealth in emerging markets. Disposable income gradually increases over time as consumers shift from rural to urban settings and trade agricultural jobs for positions in the manufacturing, service, and technology industries. Companies with recognizable brands available at multiple price points will have the most success reaching a larger pool of customers,” R.J. Hottovy, Morningstar’s consumer equity strategist, said.

“Expanding the consumer base will also require significant infrastructure upgrades in emerging markets. Regulatory and geopolitical considerations will play a large role in foreign direct investment as each country looks to strike a balance between protecting local companies and encouraging foreign investment. We think larger multinational corporations have the balance sheets and access to capital to absorb the effect of new legislation.”

In the report, Morningstar equity analysts evaluated five emerging-markets regions: China, India, Latin America, Central and Eastern Europe, and Africa. Analysts reviewed demographic trends, including population growth; driving factors of wealth creation, such as urbanization and private investment; the structure of local consumer industries; and regulatory and geopolitical concerns. Morningstar also analyzed the infrastructure needs of each emerging-markets region, as well as the strategies that consumer staples companies deploy when looking to enter or expand in a given region.

Key takeaways of the report include:

Favorable demographic and urbanization trends will be fundamental longer-term consumption drivers in China. Additional catalysts include the growth of China’s middle class, expanded Internet and broadband adoption, and government policy changes.
India is poised to see continued population growth of approximately 1 percent annually as the working-age populace also grows as a percentage of the total population, while regulatory issues and foreign direct investment restrictions remain headwinds to the success of some global consumer staples companies.
The Latin American market is attractive for consumer staples companies, as population, per capita incomes, and urbanization rates are all expected to grow. Meanwhile, inflationary pressures and relatively poor infrastructure continue to present disadvantages to consumer staples companies looking to enter the market.
Some countries in Central and Eastern Europe are the most mature of the emerging-market regions evaluated in the report, because of the region’s transition to free markets, highly educated workforce, and relative economic stability. However, an aging population and lacking infrastructure will hamper opportunities for consumer staples companies.
Africa will become an increasingly strategic region for consumer staples companies over the next several years, driven by its large, young, and rapidly growing population; increasingly favorable regulatory reform; and urbanization and the resulting wealth creation among consumers in Africa. Angola, Ethiopia, Kenya, and Nigeria are key burgeoning Africa markets, in addition to South Africa.

Top-Down and Bottom-Up Forces are Driving Dramatic Changes Within the Wealth Management Industry

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The convergence of top-down forces (increased regulation) and bottom-up forces (changes in consumer behavior) is driving dramatic and rapid changes within the wealth management industry.

According to Sergio Alvarez Mena III, member of the Florida International Bankers Association (FIBA)’s Wealth Management Forum Advisory Committee and Director at Credit Suisse Securities (USA): “The speed and depth of transformation has created unique challenges for the industry. In order to navigate these developments, we must remain cognizant of the impacts in order to manage the changes for our clients.”

Alvarez-Mena points to the regulatory environment as having the most significant “top-down” impact on wealth management. “Largely as a result of the financial crisis of 2007/2008, we are experiencing not just increased enforcement of existing regulations, but new regulations,” he says.

Some industry reshaping has already occurred as a result of the escalating costs of complying with new laws such as FATCA and BASEL III. “The general notion of de-risking, inherent in these new regulations, is causing segmentation of the marketplace,” states Mena. “There are significant implications that the industry has to clarify.”

“Miami is a classic example, with a lot of consolidating and shifting of core business models by the players here. The industry we see today is changing so radically that in five to ten years, it will look very different.” Alvarez-Mena will be a speaker at the upcoming FIBA Wealth Management Forum 2014 of which he said“This is a rare opportunity to hear what industry leaders are doing and thinking in a non-promotional setting.”

In addition to increased regulation, today’s wealth managers are also confronted with “bottom-up” changes, most importantly the proliferation of huge amounts of data, and variations in how clients deal with their money.

The upcoming FIBA Wealth Management Forum 2014, presents an important platform for gaining industry –expert knowledge and sharing industry best practices. Alvarez-Mena, who also serves on FIBA’s Board of Directors, views FIBA as the premier Latin American cross- border financial services industry organization, “nowhere is there the amount of talent conducting global business on the highest level than the broader FIBA constituency.”

“Our clients are aware of the new trends, but rely on us as wealth management professionals to advise on the changes. Platforms such as the FIBA conferences ensure we stay updated on what is most dynamic about our industry,” says Alvarez-Mena.

The Florida International Bankers Association (FIBA) Wealth Management Forum 2014 at Miami’s JW Marriott Marquis Hotel on September 15-16 will give industry professionals the competitive edge needed to navigate transition and fundamental change.

For more information, or to register, visit http://www.fibawealthmanagement.com .

deVere Group Launches in San Francisco as Part of U.S. Expansion

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One of the world’s largest independent financial advisory organizations is opening its first office on the U.S. west coast. deVere Group’s base in San Francisco is an integral part of the company’s ambitious expansion plans for the North American market. The San Francisco operation, which is located in the city’s prestigious Market Street, will be headed by Adrian Flambard.

The organization, which has 70 offices globally, more than 80,000 clients and $10bn under advice, launched its U.S. hub office in New York in June 2012. It also has a presence in Miami’s Brickell financial district.

Nigel Green, the deVere Group founder and CEO, comments: “We’re delighted to announce the opening of the San Francisco office, which is an integral part of deVere Group’s strategic push further into the North American market.

“We are committed to developing our already established presence in the U.S. and expanding into Canada over the next two years in order to meet the ongoing demand for our financial services from U.S. and Canadian citizens, international investors and expatriates.

“This soaring demand is being fuelled by a growing financial awareness and savviness in America since 2008 – people know more than ever that they need professional advice to maximise and safeguard their wealth – and because an ‘advice gap’ has been created in recent years due to many advisory firms exiting the market. We believe that our American offices have the potential to be the organisation’s most successful. He adds: “What happens in the U.S. marketplace is often a good indicator of where the wider financial services industry is headed in terms of trends, regulation and business practices. As such, we will continue to carefully analyse our expansion process here to see how our business models in other markets in which we operate might evolve.”

Senior Area Manager of deVere USA Inc, Benjamin Alderson, says: “deVere USA, which is regulated by the Securities and Exchange Commission, already has a significant number of San Francisco-based clients, and due to its major financial hub status, and its high population of high net worth U.S citizens, globally-minded investors and expatriates, San Francisco was a natural choice for the next stage of our North American growth strategy.

The team

The San Francisco operation, which is located in the city’s prestigious Market Street, will be headed by Adrian Flambard, who has relocated from deVere Group’s New York City office.

Mr Flambard, who started his career as a chartered tax advisor with PriceWaterhouseCoopers and is a well-known, experienced advisor in the international advisory sector, says: “This is a fantastic opportunity to be further involved with a robust global expansion within a dynamic, sophisticated market in which there is an obvious need for our services. These are exciting times for deVere Group.

“We are looking to extend the enviable reputation that deVere has in other regions of the world for delivering a world-class, results-driven service to its clients. We’re looking forward to becoming the San Francisco area’s most trusted advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.”

There is currently a team of five in the San Francisco office with the number of advisors expected to reach 15 within six months.

COMO Hotels and Resorts Expands to The U.S. with The Opening of Its First Urban Hotel Property in South Florida

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COMO Hotels and Resorts, a five star hotel group based in Singapore has opened the company’s first hotel in North America. COMO is renowned for iconic properties including Metropolitan by COMO and The Halkin by COMO hotels in London, as well as the a private island resort of Parrot Cay by COMO in Turks and Caicos.

Metropolitan by COMO, Miami Beach is the inaugural hotel property for COMO Hotels and Resorts in the continental United States, adding to its existing eleven international destinations, and among three new luxury properties to open in the last six months under the company’s growing hospitality portfolio. Metropolitan by COMO, Miami Beach debuts as the first oceanfront beachside property by COMO Hotels and Resorts under its Urban Hotels brand of accommodations.

Located at 2445 Collins Avenue, in the heart of the historic Art Deco District, Metropolitan by COMO, Miami Beach occupies an authentic pre-war Art Deco building, originally designed in 1939 by the celebrated American-born architect, Albert Anis. The distinguished nine-floor property consists of a total of 74 guestrooms with breathtaking views of both the ocean and the bay, an exclusive COMO Shambhala Urban Escape with a total of four treatment rooms, a rooftop Hydrotherapy Pool, outdoor yoga terrace, steam room and gym. Metropolitan by COMO, Miami Beach features Traymore Restaurant and Bar – an exquisite seafood restaurant and Gin Bar, complete with private dining area. An outdoor terrace leads to a private pool, exclusively for hotel guests, with poolside cabanas and bar, offering an outdoor à la cartemenu. The hotel offers direct beach access and comfortable loungers for hotel guests on the sumptuous sands of South Beach, while boasting to be the only hotel in its zip code to have a private dock on the waterway, opposite the hotel and adjacent to Collins Avenue.

The property was originally named The Traymore hotel, and became listed as an historic landmark by The Miami Design Preservation League, after serving as a hospital during the Second World War. The building’s original façade, ground floor tiling and Art Deco architectural accents surrounding the exterior of the building are therefore required to remain in their original form. This becomes a distinguishable feature and unique selling point for Metropolitan by COMO, during the hotel’s 12-month design and renovation, as every experience and property developed by the company is inspired by the history and inherent culture of the destination, paired with individually curated aesthetics that are handpicked by the founder of COMO Hotels and Resorts, Christina Ong.

Overseeing the interior design of the hotel is the award-winning Italian visionary, Paola Navone. Driven by her deep interest in a broad spectrum of cultures – particularly oriental ones – Navone travels extensively and her belief in cultivating the manual skills of Eastern cultures is inspired by her experience of working for years with craftsmen in the Philippines. Navone has also created the interiors for COMO’s latest island resort, Point Yamu by COMO, Phuket, in Thailand, which recently opened over the winter period.

At the heart of Metropolitan by COMO, Miami Beach is the award-winning wellness concept, COMO Shambhala– the sister brand to COMO Hotels and Resorts, that runs through all COMO properties worldwide as a hallmark of holistic and healthy living, cuisine, lifestyle and activity. The hotel’s COMO Shambhala Urban Escape offers a combination of Asian-based therapies, nutrition and exercise based on a results driven agenda managed by experts in holistic health.
Guests at Metropolitan by COMO, Miami Beach can also benefit from COMO Shambhala Cuisine.

Guestroom accommodations at Metropolitan by COMO, Miami Beach bring the signature COMO experience to the business traveler, couples and the extended family. Eight floors encompass a total of 74 guestrooms overlooking the city, the intracoastal waterway or the ocean. The different types of accommodations include City Rooms, Metropolitan Rooms, Lake View Suites and Ocean View Suites, whereby the hotel’s signature Metropolitan Room – accounting for over three quarters of the total guestrooms – is available with either a balcony, ocean view or a combination of both. Approximately one third of all guestroom accommodations at the Metropolitan by COMO, Miami Beach offer a balcony, so guests may enjoy the year-round subtropical climate Miami Beach is known for.

Metropolitan by COMO, Miami Beach is walking distance to the famed nightlife and shopping districts of South Beach, including Ocean Drive and Lincoln Road Mall, that form the city’s world-renowned reputation as one of today’s leading travel destinations for subtropical sun seekers and a playground for the world’s rich and famous.

Metropolitan by COMO, Miami Beach is owned and fully operated by COMO Hotels and Resorts, as the newest addition and fourth Urban Hotel property, joining Metropolitan by COMO and The Halkin by COMO hotels in central London and Metropolitan by COMO, Bangkok. The South Florida property is among a total of three newly opened properties by COMO Hotels and Resorts, including Maalifushi by COMO, Maldives and Point Yamu by COMO, Thailand.

William De Vijlder Appointed Group Chief Economist of BNP Paribas

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BNP Paribas announces the appointment of William De Vijlder as Group Chief Economist. He will report to Philippe Bordenave, Chief Operating Officer of BNP Paribas Group.

William De Vijlder was born in 1960. He began his career in the Economic Research department of Belgium’s Generale Bank (Générale de Banque) in 1987 and became Chief Investment Strategist in the Asset Management division in 1989. He was subsequently appointed Managing Director and Global Chief Investment Officer at Fortis Investments. Since 2009 he has been a member of the Executive Committee of BNP Paribas Investment Partners, first as Chief Investment Officer of Strategy and Partners, and for the past year, as Vice-Chairman.

William holds a PhD in Economics and has been a Senior Lecturer in Finance and Economics at the University of Ghent in Belgium since 1991.

Managed from Paris by William De Vijlder, BNP Paribas Economic Research is a global group function. It provides economic analysis to the group as a whole and its clients, from financial markets to retail banking entities businesses. The team is very international with experienced economists.

Economic Research media coverage is very large, and economists are often quoted particularly in the economic and financial press. The coverage is also made available through the Economic Research website where all publications, including web TVs, are publicly available.

William will take up his new role on September 1st, 2014.

Prudential Capital Group Names Michael Berry to Lead London Office

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Prudential Capital Group has named Michael Berry a managing director and head of its London office, the company has announced. Prudential Capital Group, provider of private capital, is an asset management business of Prudential Financial, Inc.

Berry’s appointment is effective immediately. He reports to Marie Fioramonti, managing director and head of Pricoa Capital Group, the non-U.S. business of Prudential Capital Group, which has provided private placements and mezzanine financing in the U.K. and Europe for more than 30 years.

“Michael is a welcome addition whose relationship-oriented approach is key as Prudential Capital Group continues to provide tailored financing for middle-market companies looking for alternative sources of capital to fund growth over the long term,” Fioramonti said. “Michael’s deep experience in leveraged finance will help Prudential Capital Group as it continues to expand its risk investment platform.”

Berry, who has more than 30 years of experience in finance, has a wide international background, having set up and led leveraged teams at three major banks. He was managing director and head of specialized finance at Nomura International plc. Prior to that, he was head of leveraged finance at WestLB AG and filled various roles at Deutsche Bank/Morgan Grenfell. In addition, he founded Versatus Advisers LLP, which was bought by Oriel Securities, to provide financing advice.

Berry has a master’s degree in mathematics from Oxford University. He is also holds the chartered accountant ACA designation from The Institute of Chartered Accountants in England and Wales.

Prudential Capital Group has been a provider of private debt, mezzanine and equity securities to companies worldwide for more than 70 years. Managing a portfolio of $68.1 billion as of June 30, 2014, Prudential Capital offers senior debt and mezzanine capital, leveraged leases, credit tenant leases, and equipment finance to companies, worldwide. The global regional office network has locations in Atlanta, Chicago, Dallas, Frankfurt, London, Los Angeles, Minneapolis, Newark, N.J., New York, Paris and San Francisco.

Colombia’s Move Toward Basel III Could Boost Capital

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Colombia‘s Ministry of Finance earlier this week released a framework for new bank capital securities that will open the door for local banks to issue new loss absorbing securities, according to Fitch Ratings. The Colombian Financial Superintendence still needs to issue the regulations for implementation and would need to review any new issue request to determine the classification of such securities as regulatory capital. In general, Fitch believes the new rules could lead to stronger capitalization levels among Colombian banks that choose to replace their Tier II subordinated debt, which is being phased out of Basel capital rules.

Until now, plain vanilla subordinated debt, such as the securities issued both locally and abroad by Bancolombia, Banco de Bogota, Banco Davivienda and Banco GNB Sudameris, among others, has been a standard form of noncommon equity issuance among Colombia’s banks. Such securities have lower marginal capacity to provide cushion above the point of nonviability, which explains why Fitch ascribes no equity credit to such securities. Any higher loss absorbing capacity from newer securities, (such as noncumulative preferred issued in other regions) would benefit the overall capital structure of Colombian banks.

Fitch believes further strengthening of Colombian banks‘ capital base is warranted given future growth expectations and the risk of internal capital generation falling short of adequately supporting such growth. Recognizing capitalization concerns, the Colombian regulator has already approved changes that drive regulatory capital measures nearer to international standards. Such changes have included the exclusion of goodwill (generated since August 2012) from regulatory capital calculations and clearer guidelines on regulatory capital minimums for common equity, Tier I capital and additional Tier I capital. The decree issued by the finance ministry on Sept. 2 now provides guidelines on higher loss-absorbing capital securities.

As of June 2014, about 20% of total regulatory capital (USD5 billion) included legacy, plain vanilla subordinated debt, which in Fitch’s view are considered ‘gone concern’ securities and are not included as capital per the agency’s criteria. Fitch expects those securities to be phased out over the medium term.

As is the case in other regions, Fitch will review the final conditions of each future issuance to assess the equity credit of each security, which will range from 100% (the most equity like securities) to 0%, depending on the terms of each security and the capacity to provide going concern loss absorption. In Fitch’s view, the fulfillment of the conditions presented in this framework may not be enough to achieve 100% equity credit for any given security. The use of additional buffers (higher triggers) and/or the ability of the banks to voluntarily defer coupons to preserve their capital are conditions that would enhance the equity credit of those securities.

Fitch will provide more information on the potential equity credit of the prospective securities and the possible rating of those securities based on our global criteria when the final regulations are in place. Basel III-compliant securities are typically “notched” down by two to five notches from an anchor rating, usually an issuer’s Viability Rating, because Fitch believes in most cases sovereign support cannot be relied upon to extend to a bank’s junior debt.

Any new breed of securities would require the current investor base, which holds legacy subordinated debt to enhance their investment policies and analysis tools for investing in riskier securities. This may result in a mix of domestic and international issuances to obtain a broader international investor base. Currently within Latin America, only Mexican and Brazilian banks operate under a regulatory framework that allows the issuance of new Basel III-compliant securities. As of today, virtually all of these issuances have been sold to foreign investors. It is yet to be determined if local investors will follow.

Is it Too Early to Call the Top in This Equity Bull Market?

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Five years into an equity bull market and it seems deeply unfashionable to be an optimist. Philip Saunders, Co-Head of Multi-Asset at Investec Asset Management, outlines reasons why equity markets continue to climb the proverbial ‘wall of worry’ and, on balance, and why he and the team think there is a good case that they will continue to do so.

1. Inflation – the dog that didn’t bark

Persistently low inflation rates allow both long and short-term interest rates to remain low, reducing the risk of recoveries being crushed by tight monetary policies.

2. A long cycle?

Currently there are very few late cycle economic indicators flashing warning signs such as escalating wage pressure or an uptick in consumer credit.

3. Should we fear US interest rate normalization?

The rise in interest rates will be very gradual and, excluding an inflationary flare-up, the peaks in short and long-term real interest rates are likely to be at lower levels than prior cycles.

4. The outlook for corporate earnings is improving

With the global growth rate turning up, global earnings growth could be in high single digits both in this year and next.

5. Corporate profitability is likely to remain high

The growing competitive advantage of US companies in  key sectors owing to leadership in technology and innovation suggests that it may continue to rise while the ease with which goods, services, people, businesses and capital moves around the world in the era of globalization makes it very difficult for national governments to intervene.

6. Valuations are reasonable

Markets are likely to become expensive before they revert to reasonable or even cheap valuations. With bond yields at or near multi-century lows and residential property prices in major cities around the world at sky-high levels, why should caution rule equity valuations?

7. Time to pay up for growth?

Value stock opportunities are now harder to find. However, the premium for companies offering above average growth is still moderate, probably due to residual skepticism about growth.

8. Investors are belatedly returning to the market

Equity funds have seen strong inflows in the last 18 months, but these have not recovered the outflows of the previous five years. Investec believes that we are far from the reckless euphoria that has characterized the peaks of past cycles.

For Investec AM, it certainly won’t be a smooth and easy ride over the next three years and inevitably there will be corrections along the way, but investors should be rewarded for staying the course.

You may access the full report through this link.

Highland Capital Management Launches Floating Rate Fund with Banco do Brasil

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Highland Capital Management, L.P., a Dallas-based investment management firm, which together with its affiliates has approximately $19 billion in assets under management, announced the company has launched its first European regulated fund. Highland will act as the sub-advisor of the BB Highland Floating Rate Fund, which it has launched as an Irish Qualified Investor Fund (QIF) in partnership with BB DTVM, the asset management arm of Banco do Brasil.

The Fund is designed to replicate the Highland Floating Rate Opportunities Fund by investing primarily in U.S. bank loans and other floating rate products that seek to generate yield in a rising interest rate environment. As of June 30, 2014, the Highland Floating Rate Opportunities Fund was ranked as the number one Bank Loan Fund by Morningstar based on total return for the one, three and five year periods among 213, 168 and 111 funds, respectively. The Fund Class Z also won the 2014 Lipper Award for “Best Loan Participation Fund over Three Years.”

“As international investors continue their search for yield, alpha generating bank loan funds are becoming an increasingly popular solution,” said Highland’s Co-Founder and Chief Investment Officer Mark Okada, who will serve as the lead portfolio manager of the fund. “We’re excited to be able to bring the success of the Highland Floating Rate Opportunities Fund to a much wider base of international investors.”

The Fund will target an investor base comprised of investors from Europe, Latin America and Asia. It is designed to provide foreign investors with access to the U.S. bank loan market through one of the largest and most experienced global senior loan managers. As sub-advisor of the fund, Highland will have discretion and authority over all investment decisions. The Fund will offer bi-monthly liquidity.