Investors Prepare For Rate Hike With These Funds

October 28, 2016

Steady Stream Of Inflows

Floating-rate loan funds tracked by Lipper's loan-participation fund category have pulled in money in each of the last 12 weeks, their best streak by that measure since April 2014. That amounts to $3.9 billion in new cash since July, according to the Thomson Reuters research service.

The current streak pales in comparison to the 95-consecutive weeks of net inflows recorded by the funds from 2012 to 2014, according to Lipper.

The average U.S. bank-loan mutual fund investor earned just 2.8% a year over the last five years, according to a Morningstar estimate, based on data showing when investors moved cash out of the fund. Investors would have gained 4.7% had they bought and held the fund over the entire period, the research service said.

Now investors are coming back, with values harder to find. And 62% of the S&P/LSTA U.S. Leveraged Loan 100 Index's loans are trading at or above their face value, according to S&P. Many borrowers are now tying their loans to lower one-month Libor rates to delay hitting the 1% threshold that would trigger raising their payments.

"If expectations are for high single-digit or double-digit returns, that very likely will not be achieved," said Remington.


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