Investors shell-shocked by the fallout from high inflation, rising interest rates and slowing economies and looking to alternative markets for portfolio diversification and attractive returns might want to consider a relatively young and little known asset class: direct small lending.
Portfolios of such loans to households in the US, Europe and potentially in Asia tend to be underpinned by low volatility and a relatively high coupon that helps absorb any losses. Other characteristics of the loans, typically taken out by creditworthy high-income earners to consolidate debt into a single, cheaper loan, include a 3-5 year maturity and repayment in 24 months.
Tonko Gast, founder and CEO of Dynamic Credit Group and portfolio manager, discusses the asset class with chief market strategist Daniel Morris on this Talking heads podcast.
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Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience.
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.