Factor-Based Private Debt Investing at the Industry and Country Level

Abstract

The goal of this article is to show evidence of the applicability of style investing at the industry and country level within a booming and tradeable credit asset class: leveraged loans (i.e., broadly syndicated loans to risky corporates). We find that value and momentum characteristics in the cross sections of US industry indexes and European industry and country indexes of leveraged loans are significantly associated with future credit excess returns, and translate to economically meaningful risk-adjusted returns in the context of a systematic long-only portfolio. An important implication of this research is that active credit managers employing loan trading strategies that are industry and country neutral do not make use of a viable source of additional return.