Why alternative credit?
Many investors turn to their fixed income portfolio as a source of income and diversification. Alternative credit refers to asset types beyond traditional fixed income sources like U.S. Treasuries, high-quality corporate bonds and municipal bonds.
Alternative credit may provide an attractive level of income and diversification as well as help manage the impact of changing interest rates.
Generate an attractive level of income
Investing beyond traditional fixed income in less-liquid areas of the market such as high yield bonds, senior secured loans and structured products may help provide differentiated sources of income.¹
Current yield as of December 31, 2022¹

Reduce the impact of changing interest rates
Adding assets that are less sensitive to changes in interest rates (low duration) may help reduce the impact of changing interest rates.
While traditional fixed income investments have become more sensitive to changes in interest rates over the last 10 years, less-liquid areas of the credit market may help reduce a portfolio’s overall sensitivity to interest rates.
Comparison of duration among asset classes
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U.S. loans2
|
U.S. high
yield bonds2 |
Bloomberg U.S.
Aggregate Bond Index |
|
---|---|---|---|
December 31, 2012
|
0.25 years
|
3.92 years
|
5.07 years
|
December 31, 2022
|
0.25 years
|
4.04 years
|
6.40 years
|
Diversification
Finding low-correlated assets, or assets that do not move up and down together, is difficult today. However, less-liquid areas of the credit market have historically exhibited low correlation to traditional fixed income investments.
Correlation to the Bloomberg U.S. Aggregate Bond Index (2017-2022)²

Investor considerations
While core fixed income investments can be accessed through low-cost passive strategies, many less-liquid and more-complex areas of the credit market require a skilled manager. An active manager with the flexibility to invest across the credit markets may help identify and invest in attractive opportunities beyond the scope of traditional core fixed income investments. A broad, multisector approach may help generate income and diversify a traditional fixed income portfolio. Alternative credit may be debt that is not investment grade and may be subject to credit default risk. Investing in structured products is highly complex and speculative.