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CEF INSIGHTS PODCAST: OAKTREE'S MULTI-SECTOR INCOME OPPORTUNITIES


Investors seeking income protection may struggle with traditional fixed income investments as interest rate risk challenges an asset class that has typically provided diversification. In this CEF Insights Podcast Episode, Oaktree executives Danielle Poli and Wayne Dahl discuss the opportunities of more specialized investments and a multi-sector income strategy, and the current market outlook.


Oaktree is a leader among global investment managers specializing in alternative investments. Its Diversified Income Fund, ticker ODIDX, is an interval fund with an objective to seek current income and attractive total return by investing globally in high-conviction opportunities across Oaktree›s performing credit platform in both public and private markets.

 
Featuring:

Danielle Poli, Managing Director, Oaktree CapitalDanielle Poli
Managing Director & Co-Portfolio Manager, Oaktree Diversified Income Fund

Oaktree Capital Logo

Wayne Dahl, Managing Director, Oaktree CapitalWayne Dahl
Managing Director & Co-Portfolio Manager, Oaktree Diversified Income Fund

Oaktree Capital Logo

 

Listen here:

Podcast Transcript:

CEFA:

Welcome to CEF Insights, your source for closed-end fund information and education brought to you by the Closed-End Fund Association. Today, we are joined by Danielle Poli, Managing Director, and Wayne Dahl, Managing Director, both with Oaktree Capital as well as Co-Portfolio managers of Oaktree Diversified Income Fund, a closed-end interval fund with ticker ODIDX. 

Danielle, and Wayne, we are happy to have you with us today.

Danielle Poli:

Thank you so much. We're glad to be here.

Wayne Dahl:

Yeah. Thank you.

CEFA:

Danielle, Oaktree has specialized capabilities providing income solutions and has a highly experienced team. Can you give us some background on the firm, your investment team and your approach to managing credit strategies?

Danielle Poli:

Well, gladly. Our firm, Oaktree, was founded in 1995, but our roots in credit investing go back much further than that. I'd love to just share a story about our founders, Howard Marks and Bruce Karsh, who are considered pioneers in investing in sub investment grade credit.

Back in 1978, Howard actually started one of the first high yield bond funds in the industry at Citibank. And he'd met Michael Milken in California and saw the value of investing in what was then not a preeminent industry, an inefficient market, and really started to develop a track record there.

Howard then moved from Citibank to TCW in 1985 to establish that firm's high yield bond department. And a couple years later, he was joined by Bruce Karsh, an investor and lawyer by training. And together in 1988, they started what would be one of the first distressed debt funds from any major financial institution.

And they invested together throughout the 1990s recession. And in 1995, they decided to leave TCW and start their own firm, Oaktree, which Wayne and I have had the pleasure of working at for some time and being a part of our multi-strategy investment team.

As a firm we've been in business now for 26 years. We've invested through multiple market cycles and we're really differentiated by our longstanding private credit platform, our investment approach, and being able to perform in good and bad markets.

So, we're headquartered in Los Angeles, California, but we're a global firm. We've got over a thousand employees and a strong partnership with Brookfield that began in 2019. And ODIDX, you mentioned, is a great example of how we're combining our firms' knowledge for the betterment of our clients. So specifically at Oaktree, our expertise in investing in credit and Brookfield's expertise in '40 Act fund management and operations to allow us to deliver what we think is a pretty unique product to a much broader market.

So having shared just a little bit about Oaktree, I want to tell you about our performing credit platform and the type of strategies that we manage and have been managing for a long time. Our individual strategies at Oaktree actually have on average a 20-year track record. And I'll start just on the liquid credit side with high yield, given the story I told you about Howard in that field.

When compared to the broader high yield market ETFs and such, our strategies had far fewer defaults with superior recoveries, and that's based on our team's bottom-up approach to fundamental credit research.

We also invest in senior loans, it's a step out of high yield. Delivers floating rate exposure, and in our portfolios often first lien in the capital structure. And these are really core strategies that we invest in within our multi-strategy business, but we also have alpha-oriented strategies outside of this. So, areas like structured credit, both CLO and real estate investing, emerging markets, convertibles. We have a really robust liquid credit platform.

We also have a very long track record in private credit investing. One of, I believe the longest in the industry that dates back to the early 2000s, when we launched our first mezzanine fund. We invest in middle market direct lending, both sponsor and non-sponsor. And this is an area of the market, I think that allows us the opportunity to get really attractive yields with highly negotiated covenant packages on loans that differentiate a traditional type of credit product.

We are really in the business of alternative credit investing and we bring together and harness the strength of our credit platform in an area of our business called Global Credit that we founded about six years ago. We'd been managing multi-strategy accounts at the firm back since the firm's founding, but in 2017, we launched Global Credit, which is now an $8 billion business for us at Oaktree and allows our clients to access the entirety of our platform in a single solution.

So, this is not a fund-of-fund approach. We're building a portfolio from the bottom up and focusing on our highest conviction ideas and allocating it across strategies and really providing our clients an alternative to traditional fixed-income markets.

And you asked about the team that manages that, Bruce Karsh is not only a founder of the firm, but a Chief Investment Officer and Lead Portfolio Manager of this area. And then in addition to Wayne and myself, serving as Portfolio Managers for ODIDX, Armen Panossian, Head of Performing Credit and Portfolio Manager of Private Credit, and David Rosenberg, Co-Portfolio Manager of Global Credit and of High Yield Bonds. This is the core team that manages this portfolio and is bringing ODIDX to the market.

CEFA:

Wayne, ODIDX is a multi-sector income strategy with a broad range of opportunities in its investment universe. What is your process to evaluate this broad investment universe to develop a workable set of potential investments?

Wayne Dahl:

I think one of the advantages that Oaktree has is that we have long established track records and investment strategies in all of these underlying strategies. So you're right, the broad universe that we cover is over 10,000 securities, and if we had to filter through that on a regular basis, it would take an army of people just dedicated to this strategy.

But with the focus on our underlying teams, we're able to trim that universe down significantly based on the holdings that are in those underlying strategies. And from there, we can further revise to make the optimal portfolio for a fund like ODIDX, where we lean on the expertise and the opinions and views of the portfolio managers from those underlying strategies, as they look for their best opportunities to fill out the ODIDX portfolio.

CEFA:

How do you then make specific security selections and allocate those positions as you build your portfolio?

Wayne Dahl:

The security selection is really, I think, key to Oaktree's DNA, or really based on some of those founding principles that Danielle mentioned with Bruce and Howard, and that is that focus on risk control through fundamental bottom-up credit analysis. And that really will always serve as the foundation for our investing in this strategy or any strategy. So as we build the portfolio, we are looking for those names that meet those fundamental criteria, and that will be our first and foremost.

We're certainly aware of the macro environment. We're aware of some of the other technical factors that may be in various markets or risk assets in general, but it's that focus on fundamental bottom-up credit work that has given us that established track record of lower defaults and better recoveries than the market that Danielle mentioned earlier.

CEFA:

What are the key factors or events that would lead you to sell a particular portfolio security or significantly change your portfolio allocation?

Wayne Dahl:

Yeah, it's a great question. I think on the particular security, that one is definitely going to be driven by a potential change in fundamentals. We have a very large team of credit analysts that focus on each of the underlying strategies contained within the ODIDX portfolio, where they are updating their information as information comes in.
That will primarily be through quarterly updates through earnings calls, et cetera, but that focus on a change in fundamentals will be the key in potentially selling. And that may be selling because a security has outperformed our expectations, or in some case, maybe we're seeing the thesis change and we need a sell for other reasons to avoid potential downside.

When it comes to the broader portfolio allocation, in that case that's really going to be dictated by several factors and some of those will include our views from the bottom up. I'll give you a great example. If we go back to mid-2021, there was a lot of talk about rising inflation and what that would potentially do to interest rates in the US and would the central bank have to respond to that activity.

As we looked at our underlying portfolios and listened to earnings calls, spoke to CEOs and CFOs and others, it was clear that it was becoming a larger and larger concern within these companies, fear of inflation, cost pressure, supply issues, compensation, a number of things that could impact margins on these companies.
And that really led us to make shifts within the strategy itself to say, if this is going to be a problem, we need to alter our allocations so that we're better prepared for inflation and its impact of potential rising interest rates. So just an example, but again, I think it's a good one to show how the macro also is followed by that view from the micro or from the bottom-up analysis.

CEFA:

Danielle, the Federal Reserve has begun raising interest rates, inflation has been high, and if that continues, it may force the Fed to be more aggressive. We also have significant geopolitical tensions that have added to volatility. Where do you see the credit markets currently? And what is your outlook for the rest of 2022?

Danielle Poli:

Thanks. As Wayne said, at Oaktree, we're not macro forecasters, but when you're running a multi-asset portfolio, you have to think about the macro, it's really important. And so, on that front, at the end of last year, we felt the chief concerns confronting fixed-income markets over the next quarters would be inflation, as Wayne mentioned from a bottom-up perspective, actually talking with the companies that we lend to, the Fed, the impact of less accommodative monetary policy and geopolitical tensions. And much has transpired this year and we believe that these risks are even more highly interconnected today than maybe they were.

And how that's impacted our markets, maybe I can just go back to the beginning of this year and give you somewhat of a play-by-play, because I think it's instructive for how we're positioned today. So in the first month and a half of this year, it was more about rates and duration and not as much about spread widening. The high yield market actually took a leg down as much as 10 to 15 points, but not triple-Cs, which actually outperformed on average, just given their shorter duration.

Then in March and early April, spread widening did really start to pick up. And it started more heavily in high yield with triple-Cs catching up in price degradation to some of the higher rated high yield bonds that had sold off previously.

Now over the last four to five weeks, you will have seen senior loans trade off in sympathy with that spread trade. But prior to that, high yield had widened just about to a 500 spread with triple-Cs leading the charge and on average yielding even over 12%. These are just broad market stats that I'm sharing.

if you think about a historical spread range for high yield of trading in 300 to 500 basis points. Below 300 basis points, no one wants to buy it, it's not a bargain. And it's what our portfolio manager for high yield, David Rosenberg has referred to as medium yield instead of high yield.

But at 500 or higher that's when money starts to pile in, and people start to think high yield is a great buy. And so what we see is the number of issuers decline because it costs more to issue the debt. And so you have a supply issue and also a pickup in demand, which is maybe why spreads have tightened over the last few days.

And then moreover, I'd just say that with the 10-year coming back in below 3%, people may think rates are more under control, maybe inflation will become more under control. That's the first observation. The second observation is that the recent Fed minutes had a little more dovish commentary. And maybe number three from an observation standpoint is that there's been a lot of cash on the sidelines. And so I think people were coming in with that.

So, what we've seen is the ability to invest in high yield at attractive yields of around 8%, much higher than average. And senior loans about the same because of the shape of the curve. LIBOR or SOFR approaching 2%. So it's gone through its floor and the forward curve is quite nicely upward sloping. So, the yield to worse of both of those is trading on top of each other.

And it's a nice time to have these strategies in a portfolio given that higher yield, especially as compared to more traditional markets like investment grade and treasuries, which are down more than 10% this year compared to 4% for the high yield market.

So today we're pretty cautious about rates. Short-term rates are expected to rise over 200 basis points this year. So we're concerned that there could be more downside than upside in that duration factor and we're not doing a big rotation yet into high yield. We're staying pretty floating. It's about 60% floating in our portfolio today in a combination of senior loans and securitized products. So CLOs and CMBS also drive that number. And at some point this year, we feel there will be a better and bigger buying opportunity in high yield, but duration could continue to be a problem.

If the 10-year is above 3%, equity markets could take another dive, even with the S&P down 14% this year and the NASDAQ down 20%. And if that were to happen, Wayne and I theorized that there could be a regulatory response over the next year or two that flips things and duration becomes your friend. And then there's a total return and convexity play where we think we can make even more attractive purchases than we are today, with things that are trading at a much higher discount to par that will mature over the next four to eight years and create hopefully a nice return stream.

So, to sum that up, we had our investment committee this week. We meet as a committee of portfolio managers across these various asset classes every two weeks and not yet is where we've come out.

Wayne Dahl:

Maybe I would just add one thing to that outlook. And I think the last few weeks have hit this point home a little bit, which is one of the challenges of 2022, is that you're right, you have a central bank that has certainly been more aggressive in the last four or five months than people probably thought they were going to be in late 2021. And really that's not surprising in response to inflation being at 40 year highs. So that's negative, and as Danielle highlighted, this has put pressure on a lot of fixed-income investments, especially those with longer duration.

But at the same time, there's concern that will the Fed go too far. Will that create a hard landing? Will eventually we increase the risk of recession? And that also has its negatives. But you saw maybe in the last few days or weeks that there's this belief in the markets that, oh, maybe the Fed will not be as aggressive as they need to be because they're afraid of that growth dynamic and maybe some of that pressure will come off their aggressiveness or hawkishness when it comes to interest rates.

And really that's virtually impossible to predict. And that's why I think, as Danielle articulated, we've tried to construct a portfolio that really doesn't need to have either one of those outcomes. We can be prepared for volatility on either side of that. Fed being aggressive, growth slowing down, or hey, we get the benefit of them being less aggressive, but that comes at the cost of higher recession risk. So trying to avoid directly playing into that theme and really playing into a portfolio that can withstand that regardless of the outcome.

CEFA:

What challenges does this present to income-oriented investors or investors seeking portfolio diversification from traditional fixed-income investments?

Danielle Poli:

I think Wayne alluded to this and did nicely. Investors are looking for ways to protect income because of the worry of rising rates, and one of those ways is investing in higher yielding debt. But we think you've got to be careful. We think this is a credit-pickers market and there's a need to be selective. So, investing in ETFs or index funds that take more of a broad-brush approach, they can provide diversification, but they can also introduce credit problems and defaults. They can also chip away at income and return just as much as rising rates.

And it's perhaps a reason why we like to invest in areas that are a bit more specialized, like CLOs, double-B CLOs have spreads approaching over a thousand right now over LIBOR. They historically have amplified volatility compared to senior loans, about two to three times, which is why they've been inching higher, but it's provided us an opportunity to selectively add.

And really structurally they're an attractive asset. They're not for sellers of senior loans at a discount. If there were two credit issues, a CLO portfolio would have to de-lever themselves. So there's a natural self-help mechanism. And we like the diversification of the loans in the portfolio. They're really a pretty good instrument if you can buy them cheap and at a spread discount. And some of the newer portfolios are much cleaner than those portfolios that were issued pre COVID.

SASB real estate is something that we always like as well. It comes in and out in terms of issuance, but we've got a 60-person real estate team at Oaktree that traffics in this space, and it just allows us to add a unique diversifier to our portfolios.

Wayne Dahl:

One more thing is that to your question of what's the challenge, I think the challenge is that for most fixed-income investors, the bulk of that universe is down anywhere from 8 to 12 or 13%, that's in your core bond. So that certainly presents a challenge of how do I get protected from that.

And I think Danielle really hit the nail on the head is you have to drift away from what we would consider traditional fixed-income investments and add some of these more specialized investments, that again, you are getting compensated for higher yields, but they do require that level of expertise, and they typically can't be accessed through traditional ETFs and mutual funds. So again, the kind of benefit of a portfolio like ODIDX, to offer that diversity away from what we would consider challenged traditional fixed income.

CEFA:

Danielle, you and your team have particularly strong expertise in private credit, which is typically not accessible to most investors. How would you expect private credit to perform in an environment of rising rates?

Danielle Poli:

Private credit can provide double digit income in some cases, and is tied to a floating reference rate, helping hedge against an environment of rising rates. Given the private nature too, they're not marked-to-market, so they don't have as much volatility. So in a rate driven selloff or where you're seeing spread widening and high yield, private credit doesn't tend to move and it can be a volatility dampener to an overall portfolio.

CEFA:

Does this exposure to private credit provide a degree of diversification to your portfolios that investors may not get from more traditional fixed-income investments?

Danielle Poli:

Yes, I absolutely think so. And in ODIDX, we're incorporating private credit of a very specific type. So where we've been allocating today is in higher yielding, highly negotiated, highly structured private credit.

And a reason why we focus on the higher yield is we want to blend up the return of our portfolio, given that we allocate just under a quarter, 25% of the portfolio to private credit. And really this area of private credit leverages Oaktree's origination capabilities, especially our structuring and restructuring capabilities that actually have been borne out of our distressed debt business.

The types of companies that we're looking to lend to are often publicly traded or founder owned that are looking for financing for a strategic objective. So maybe it's building a manufacturing plant or looking to buy a competitor and it needs to get done quickly.

And there's certainly a need to close and a certainty of a considerable amount of capital and Oaktree can be a first call in those situations. And pricing and legal protections for us are very advantageous. Usually it's really about speed and certainty of execution for those issuers. And it's a diversified space.

We lend to a lot of different companies in many different industries, but one area that we like in particular, life sciences, accounts for almost 15% of what we do in direct lending in the non-sponsor area. And we like this because it's not a distressed industry at all. It's growing, it's very attractive. We don't take binary risks. We're not investing in pre-revenue companies. Every company has some type of lever for revenue or it's growing rapidly. They have some kind of profitable part of their business, but they're very hard to value for a traditional lender.

We really have resources that can help underwrite the science in that space. And we're looking at this as a way to invest in things like lifesaving drugs and technologies that are less correlated to an economic cycle, certainly, and can provide good diversification in an overall credit portfolio.
So an area we find attractive and one we've been allocating increasingly so within the ODIDX portfolio.

CEFA:

Wayne, how is the current portfolio for ODIDX positioned? In the current market environment, are there areas where you are finding attractive valuations?

Wayne Dahl:

Sure. I think we've touched on some of the elements of positioning already in the call and just to review, I mean, one of the things that we've certainly done over the last several months is emphasize floating rate assets over fixed-rate assets. And that's primarily given the backdrop for interest rates and inflation.

And that's done well, but I would emphasize that does come from a number of different sources. We do buy senior loans or broadly syndicated loans. Those are certainly our core, but we're also buying structured credit, both backed by real estate and corporates that also provide that sometimes higher yielding floating rate exposure. So that's probably the biggest one.

On the deemphasizing side, we did talk about convertibles a little, but really that's something for the last several months that have been a very small part of the portfolio, down to 1% or even lower as we've just been concerned about equity markets and valuations.

And for those who do not follow the convertible market in the US, this market is very heavily weighted towards technology companies. So, you do tend to get an overweight to these higher growth, higher multiple companies that certainly have been under pressure in this interest rate environment.

Where do we find value today? I think Danielle touched on this earlier. We do find a lot of value in the structured credit space. I think buying securitized assets, it makes a lot of sense for this portfolio, again, because we're able to provide investors with an investment that they will not find in most traditional fixed income investing or any fixed income investing in the mutual fund or ETF space. Those provide a higher than average yield relative to some of the other positions in the portfolio.

And then really third, I think to touch again on private investing that Danielle mentioned, but really there, one of the benefits of private investing is when you can do that and lock in that income without a lot of price volatility. That really goes a long way to helping a fixed-income investor preserve that capital that they're getting distributed from the portfolio.

And we think private investments today really does provide that, again, while mixed with some very opportunistic public investing, which again, even in this environment may out yield over the next several months, some of those private investments. So that's a little bit about where we're leaning in and leaning out of at the moment.

 CEFA:

Wayne, for income-oriented investors that may be new to the fund and Oaktree's approach, how would you see this multi-sector, public and private credit strategy best positioned in their investment portfolio?

Wayne Dahl:

Yeah, I think for investors that are new to this space, again, if we think about the two extremes, you have the ability to invest in equities, which certainly come with higher volatility and potentially more risk, but with more potential upside against a more traditional core bond or bond portfolio, which is going to be much lower yielding and lower volatility, and of course in today's environment, what may provide even more risk through duration.

So, I think this portfolio fits nicely in the middle of that for an investor where you do earn a higher yield than that bond portfolio, so that's good. You should have a higher expected return, that should do better, but you don't have some of the volatility that comes with a pure investment in equity markets.

The other thing really is, and you touched on this in the question, is that income ability. I mean, that is something that really can help investors over time. If we look at say the historical returns in the high yield bond market by itself, for the last 30 years, it's never been negative two years in a row. And part of the reason for that is it does have that coupon. It does have that income.

So, if you're collecting six or seven or eight points of income, you can withstand a lot of volatility on the downside before you drift into that negative territory. So again, I think that's why it does fit nicely in between that traditional bond portfolio and somebody's equity portfolio to really give you that consistent return stream.

 CEFA:

And similarly for investors that may find themselves uncomfortably overweight equities, but uncertain about moving into traditional fixed-income investments, how do you see ODIDX better positioning them for a rising rate environment?

Wayne Dahl:

I think one of the big pieces of ODIDX that will help investors in those portfolio decisions today is the portfolio's low duration. We've talked about an attractive yield and spread in the portfolio, but really it's duration that will help today. If we look at traditional investment grade bonds, their duration over the last year has been anywhere from high sevens to almost nine. That's very sensitive to movements in rates.

Whereas if we look at the ODIDX portfolio, our duration is between one and a half and two. And so really you are able to pick up that yield without adding what today has been probably a larger than expected risk, and that is that risk of interest rates continuing to go higher.

CEFA:

Danielle, Wayne, we thank you so much for taking the time to join us today.

Danielle Poli:

Thank you.

CEFA:

And we want to thank you for tuning into another CEF Insights podcast. For more educational content, please visit our website at www.cefa.com.

This material is not, and is not intended as investment advice, an indication of trading intent or holdings or the prediction of investment performance. All information is current as of the date of this presentation. Views and information expressed herein are subject to change at any time. Brookfield Asset Management and its affiliates, Brookfield disclaims any responsibility to update such views and or information. This information is deemed to be from reliable sources, however, Brookfield does not warrant its completeness or accuracy.

This presentation is not intended to and does not constitute an offer or solicitation to sell, or a solicitation of an offer to buy any security, product, investment advice, or service, nor shall any security, product, investment advice, or service be offered or sold in any jurisdiction in which Brookfield is not licensed to conduct business and, or an offer, solicitation, purchase, or sale would be unavailable or unlawful.

   


Audio recorded on June 02, 2022.

About the CEF Insights Podcast

Presented by the Closed-End Fund Association (CEFA), the CEF Insights Podcast provides investors with closed-end fund education, insights, and perspectives. The CEF Insights Podcast is available on CEFA.com, Apple Podcasts, Seeking Alpha, Spotify, and other leading podcast platforms. 

 

Disclosure

©2022 Brookfield Asset Management Inc.; ©2022 Oaktree Capital Management, L.P.; & ©2022 Brookfield Oaktree Wealth Solutions LLC


Brookfield Asset Management Inc. (“Brookfield”) completed a 62% acquisition of Oaktree Capital Group, LLC (“Oaktree”), on September 30, 2019. Brookfield Oaktree Wealth Solutions LLC  is a wholly owned subsidiary of Brookfield.


The information in this or any attached publication is not and is not intended as investment advice or a prediction of investment performance.  This information is deemed to be from reliable sources; however, Brookfield does not warrant its completeness or accuracy.  This is not intended to and does constitute an offer or solicitation to sell or a solicitation of an offer to buy any security, product or service (nor shall any security, product or service be offered or sold) in any jurisdiction in which Brookfield is not licensed to conduct business, and/or an offer, solicitation, purchase or sale would be unavailable or unlawful.

Information herein may contain, include or be based upon forward-looking statements with the meaning of the federal securities laws, specifically Section 21E of the Securities Exchange Act of 1934, as amended. 


Before investing, the objectives, risks, charges, and expenses of the Oaktree Diversified Income Fund (the “Fund”) must be considered carefully before investing. Please access and read the Fund›s prospectus for additional information regarding the Fund›s investment objectives, charges, expenses, and risks, prior to making any investment decision. A copy of the Oaktree Diversified Income Fund prospectus can be found here.


Oaktree Diversified Income Fund Summary of Risk Factors

 
An investment in common shares (the “shares”) of beneficial interest in Oaktree Diversified Income Fund involves a high degree of risk. You should only purchase shares of Oaktree Diversified Income Fund if you can afford to lose your complete investment. Prior to making an investment, you should read the prospectus, including the “Risk Factors” section therein, which contains a discussion of the risks and uncertainties that Oaktree Diversified Income Fund believes are material to its business, operating results, prospects and financial condition. These risks include, but are not limited to, the following:

  • The Fund›s Shares are not listed for trading on any national securities exchange. The Fund›s Shares have no trading market and no market is expected to develop.
  • An investment in the Fund is not suitable for investors who need certainty about their ability to access all of the money they invest in the short term.
  • Even though the Fund will make quarterly repurchase offers for its outstanding Shares, investors should consider Shares of the Fund to be an illiquid investment.
  • There is no guarantee that you will be able to sell your Shares at any given time or in the quantity that you desire.
  • There is no assurance that the Fund will be able to maintain a certain level of distributions to the holders of Shares of the Fund (the “Shareholders”).
  • The Fund›s distributions may be funded from unlimited amounts of offering proceeds or borrowings, which may constitute a return of capital and reduce the amount of capital available to the Fund for investment. Any capital returned to Shareholders through distributions will be distributed after payment of fees and expenses. Although the Fund›s distributions may constitute a return of capital, return of capital does not constitute income.
  • The ultimate tax characterization of the Fund›s distributions in a calendar year may not finally be determined until after the end of that calendar year. The Fund may make distributions during a calendar year that exceed the Fund›s net investment income and net realized capital gains for that year. In such a situation, the amount by which the Fund›s total distributions exceed net investment income and net realized capital gains would generally be treated as a tax-free return of capital up to the amount of the Shareholder›s tax basis in his or her Shares, with any amounts exceeding such basis treated as gain from the sale of his or her Shares. Upon a sale of Shares, a return of capital distribution may result in an investor paying more taxes by reducing the investor›s tax basis.
  • Investors should carefully consider the Fund›s risks and investment objective, as an investment in the Fund may not be appropriate for all investors and is not designed to be a complete investment program.
  • Because of the risks associated with (i) the Fund›s ability to purchase high-yield bonds, senior loans, structured credit, emerging markets debt and convertibles, and (ii) the Fund›s ability to use leverage, an investment in the Fund should be considered speculative and involving a high degree of risk, including the risk of a substantial loss of investment.
  • Before making an investment/allocation decision, investors and financial intermediaries should (i) consider the suitability of this investment with respect to an investor›s or a client›s investment objective and individual situation and (ii) consider factors such as an investor›s or a client›s net worth, income, age and risk tolerance.
  • Investment should be avoided where an investor/client has a short-term investing horizon and/or cannot bear the loss of some or all of their investment. It is possible that investing in the Fund may result in a loss of some or all of the amount invested.

Quasar Distributors, LLC. Is the Distributor of Oaktree Diversified Income Fund.

 

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