US loan funds see fifth consecutive weekly inflow: Lipper
- Loan participation funds invest primarily in corporate leveraged loans that have floating interest rates, and hence higher rate expectations have boosted inflows into these funds.
- Loan participation funds are seeing higher inflows in 2021 since they offer better returns/dividends than high-yield bonds and provide global investors with a good diversification and hedging option.
Money flows into US loan funds have risen sharply in recent weeks thanks to rising US yields on hopes that a massive $1.9 trillion COVID-19 aid package would lift the economy.
Data from Refinitiv Lipper showed US loan funds saw an inflow of $956 million in the week ended Feb.3, which was the fifth consecutive inflow.
In January, the loan funds attracted $4.5 billion, which was the most in nearly four years.
Loan participation funds invest primarily in corporate leveraged loans that have floating interest rates, and hence higher rate expectations have boosted inflows into these funds.
"Loan participation funds are seeing higher inflows in 2021 since they offer better returns/dividends than high-yield bonds and provide global investors with a good diversification and hedging option," said Rajul Sood, head of commercial Lending Solutions at Acuity Knowledge Partners.
Expectations of an economic recovery this year from the COVID-19 pandemic have also reduced the prospects for loan defaults this year, some analysts said.
"With default rates remaining in single digits, the loan market offers compelling spreads to global investors," said Acuity's Sood.