Methodology
How fund filings become loan prices, returns and factor portfolios. The full documentation is in docs/METHODOLOGY.md on GitHub.
From filings to loan prices
US registered funds report all holdings in Form N-PORT. The SEC publishes these filings as quarterly data sets, available from October 2019. The pipeline keeps USD loans held long, computes a price as fair value divided by notional, and takes the median across all funds that report the same loan in a month.
Funds identify the same loan in different ways. LoanX IDs, CUSIPs, ISINs and FIGIs are therefore linked to each other, also using identifiers that funds include in loan names. Consumer and platform loans without identifiers are excluded.
Returns
The total return combines the price change and one month of coupon. Excess returns subtract the 90-day average SOFR, plus the ISDA spread adjustment of 26.161 bp until June 2023 as a proxy for 3-month LIBOR. When a loan leaves the sample near par and was held by at least two funds, it is assumed to be repaid at par.
Investable universe
A loan is investable at month t if it is identified, has been held by at least two funds, trades between min(20th percentile, 80) and 105, and has more than 120 days to maturity. The lower price bound falls below 80 only in stress periods.
Signals
Spread-to-maturity, spread duration and the margin over the base rate are computed from price, coupon and maturity. Idiosyncratic volatility and beta come from a rolling 12-month market model with one lag. Default probabilities come from a logit model estimated only on information available at each point in time.
Validation
The equal-weighted market index has a monthly return correlation of 0.995 with the Morningstar LSTA US Leveraged Loan Index and a tracking error of 0.6% p.a. Its beta on the lagged index return is close to zero, so the fund valuations do not lag the market.
Known limitations
- Prices are fair values reported by funds, not transaction prices.
- Funds publish their holdings only at fiscal quarter-ends, so the set of reporting funds varies from month to month.
- The sample starts in late 2019. Signals that need estimation windows start later.
- Loan-level data are not published because some identifiers are proprietary. They can be rebuilt from the SEC data with the pipeline.