In the second quarter of 2026, the Nomura Floating Rate Fund's Institutional Class shares delivered an impressive performance, exceeding its established benchmark, the Morningstar LSTA US Leveraged Loan Index. This noteworthy achievement took place amidst a complex economic landscape, which saw significant loan primary activity, indicating a resilient market despite prevailing macroeconomic challenges. The fund's strategic positioning and active risk management enabled it to navigate through a period marked by persistent inflation, geopolitical uncertainties, and the ongoing specter of interest rate adjustments, alongside emerging concerns regarding the impact of artificial intelligence across various industries.
During the second fiscal quarter of 2026, the Morningstar LSTA US Leveraged Loan Index recorded a positive return of 1.88%. This reflected widespread positive performance across all loan rating categories, a notable recovery following a volatile preceding quarter and in the context of a demanding market environment. Loans rated B demonstrated a particularly strong showing, leading the gains with a return of 1.97%. The total volume of primary loan activity reached $224 billion, which, although a 7% decrease from the first quarter, still indicated a remarkable resilience that defied broader macroeconomic anxieties.
The financial markets observed during this period were characterized by a cautious optimism, with investors closely monitoring inflation trends and central bank policies. Geopolitical developments added another layer of complexity, influencing market sentiment and investment flows. Amidst these factors, the leveraged loan market showed robustness, suggesting underlying strength in corporate fundamentals for many issuers. However, the emergence of AI as a potential disruptor introduced new considerations for credit analysis, prompting a re-evaluation of risks across different sectors.
Looking ahead, the outlook for the leveraged loan market remains dynamic. Expectations for default rates are anticipated to be within the 2.0% to 3.0% range, necessitating a continuous emphasis on astute credit selection. The portfolio's composition is being carefully managed to enhance its ability to withstand potential economic shocks and capitalize on opportunities arising from sector-specific dynamics. The strategic focus is on identifying companies with strong balance sheets and sustainable business models, capable of navigating the evolving economic and technological landscape. This proactive approach aims to ensure the fund's continued resilience and ability to deliver value for investors.
The impressive performance of the Nomura Floating Rate Fund in the second quarter of 2026 underscores the effectiveness of its investment strategy in a complex global market. By skillfully managing exposure to various sectors and maintaining a rigorous selection process, the fund was able to capitalize on opportunities while mitigating risks. The focus on strong credit fundamentals, coupled with a keen awareness of macroeconomic shifts and technological advancements like AI, positions the fund to continue its robust performance trajectory.
