Fund managers are increasingly eyeing riskier exotic assets,
some of which haven't been in fashion since the financial crisis, as yields on
traditional investments get close to rock bottom, according to Reuters.
Returns from investments in "junk" bonds,
government guaranteed mortgage securities and even some battered euro-zone debt
are plunging in the wake of global central bank policies intended to suppress
borrowing costs. In particular, the
Federal Reserve's latest move to juice the U.S. economy by purchasing $40
billion of agency mortgage-backed securities every month is forcing some money
managers who had previously been feasting on those securities to get more
creative. The only problem is they may be getting out of their comfort zones
and taking on too much risk.
To keep performance high, credit-focused managers are moving
back into some of the risky assets that got tarnished during the financial
crisis like collateralized loan obligations, or CLOs, securities cobbled together
from pools of corporate loans. But unlike the past when managers amped up
returns by buying CLOs and risky "subprime" securities with borrowed
money, leverage levels are remaining low at least for now….
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