In this interview with Bloomberg, Howard Marks says that credit instruments, such as loans and bonds, can provide equity-type returns with a good level of safety. He points out that the S&P 500 stock index has returned 10% per year for 100 years, but today investors can get equity-type returns from credit instruments with much lower risk. Here’s an excerpt from the interview:
Marks: The S&P has returned… S&P 500 stock index has returned 10% a year plus, just a little over 10, for 100 years.
That was enough to turn a dollar in 1920 into $15,000. That’s a good rate of return.
Today you can get equity type returns from what we call credit instruments. Loans, corporate loans, loans for buyouts. You can get high single digits on high yield bonds and leverage loans, public instruments that are tradable and liquid.
Or low double digits on private loans for buyouts. The best buyouts. The biggest buyouts. Double digit returns.
Isn’t that enough?
And loans on credit instruments… I mean returns on credit instruments are much safer than equity.
Equity just gets the residual after everybody gets paid, they get what’s left. Credit gets paid early in the process and if people don’t pay you, you get the company because they go bankrupt.
So it’s quite safe, and returns that are fully competitive with equities, with a good level of safety.
You can watch the entire discussion here:
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
