Central banks around the world are likely to keep interest rates low for some time to come, said Michael Cooke, head of distribution, PowerShares Canada speaking in Toronto on Wednesday, which means advisors and their clients will need to adopt new approaches and strategies to find positive real returns.

“If you look at actions and statements by central banks like the Federal Reserve and the Bank of Canada recently,” said Cooke, “they’re talking about maintaining supportive and accommodating monetary policy until the global economy finds its footing and, given current economic indicators, we are a long way from that point.”

As a result, many investors have turned away from government bonds and guaranteed investment certificates (GIC) because of their perpetual low returns, said Cooke, and have instead invested in other products, such as high-yield bonds. This flood of assets into high-yield bonds, he said, has stretched the valuations on many of those investment vehicles.

According to Cooke, investors need to think outside the box when it comes to their fixed-income investment, even if they believe interest rates could rise after all, and consider investing in bank loans.

“[This] asset class has emerged as an incredible alternative for investors that want to diversify a fixed-income portfolio,” he said, “want to mitigate against rising interest rate risk and still achieve attractive levels of current income.”

Bank loans, or senior debt, are similar to high-yield bonds, said Cooke, except they rank higher in the company debt structure, meaning an investor in senior debt will be paid ahead of high-yield investors. As well, bank loans have a floating rate, he said, meaning the coupon price will fluctuate with short-term interest rates.

“The upside is that you have virtually no interest rate risk because of duration,” he said, “what you are going to have is attractive yields to maturity of five to six per cent.”

Cooke recommends investing in the untraditional investment vehicle of bank loans through a more conventional product like an exchange-traded fund, such as PowerShares Senior Loan (CAD Hedged) Index ETF (TSX:BKL).