U.S. loan funds, which have seen 22 straight weeks of inflows from investors, are benefiting as the high-yield bond market sees the the biggest withdrawals since June, according to Bank of America Corp. (BAC:US)
Investors pulled $1.3 billion from speculative-grade notes, with declines of $740 million in exchange-traded funds and $530 million from closed-end securities. Buyers have poured on average $350 million per week since the start of September into securities that buy floating-rate debt, compared with $70 million for the rest of 2012.
High-yield bonds in the U.S. have lost 0.6 percent this month after posting gains of 12.9 percent this year through October, according to Bank of America Merrill Lynch index data. Loan funds have overtaken high-yield securities in terms of percent change in net assets in 2012, Hans Mikkelsen, a credit strategist at Bank of America, wrote in a research note yesterday.
Loans have “a better long-term value proposition than bonds while also shielding investors from the risk of rising interest rates,” Mikkelsen wrote in the note.
The JPMorgan Leveraged Loan Index, which tracks the largest dollar-denominated loans, rose to 186.78 on Nov. 8, the highest level on record. The gauge has since declined 0.2 percent to 186.17 this week.
Leveraged loans and high-yield, high-risk, or junk, bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.
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