Bank loan mutual funds have seen inflows since July 2016 Source: Lipper, a Thomson Reuters Company. Inflows ($ billions) Bank loan mutual fundsHigh yield bond mutual funds Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 -6 -4 -2 0 2 4 6 8

  • Bank loan mutual funds followed up their largest ever monthly inflow, approximately $7.6 in December 2016, with continued strong demand for the asset class. January marked the seventh straight month of inflows for bank loan mutual funds and saw the second-highest inflow into the asset class since September 2013.1
  • Generally speaking, bank loan mutual funds have experienced a broad resurgence in demand in recent months as investors have been drawn once again to their floating rate coupons as a potential hedge against rising interest rates.
  • At approximately $12.7 billion since January 2016, flows into bank loan mutual funds have far outpaced the $8.6 billion that has come into high yield bonds, another traditional income-producing asset class, during the same period.1 In part due to the healthy demand loans experienced during this time frame, they generated competitive returns against many of their peers.
  • A decline in yields across the broadly syndicated market can explain part of this divergence. However, a wave of repricing activity, which has intensified since late 2016, has helped exaggerate the spread between large corporate and middle market loans.
  • Senior secured loans, for example, have returned 10.5% since January 2016.2 This is below the approximately 19.6% total return high yield bonds produced in the same period. However, loan returns outpaced those on many other traditional income-producing asset classes, including real estate investment trusts, investment grade bonds and 10-year Treasuries.2

1 Lipper, a Thomson Reuters Company.
2 Bloomberg as of February 9, 2017. High yield bonds are represented by the Bank of America Merrill Lynch U.S. High Yield Master II Index. Senior secured loans are represented by the Credit Suisse Leveraged Loan Index. Real estate investment trusts represented by the FTSE NAREIT All Equity REITS Index. Investment grade bonds represented by Bank of America Merrill Lynch U.S. Corporate Master Index. 10-year Treasury note represented by Bank of America Merrill Lynch Current 10-year U.S. Treasury Index.

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