Retail investors began pulling money out of bank loan mutual funds and ETFs in the week ending April 16, according to Standard & Poor’s LCD. Quoting Lipper’s weekly data, LCD inflows had dwindled over the past few weeks to only $48 million the previous week. Investors pulled $249 million out of the funds and ETFs.
The retail flows into loan funds and ETFs are one reason the bank loan market has been so cheap for so long, and has allowed borrowers to ask for covenant light or “cov lite” structures. However, other data show the market to be still in good shape. New issue clearing yields remain below 5 percent, as do yields to maturity, and default rates are hovering just above 1 percent, according to Capital IQ.
S&P noted that some $66.7 billion of retail cash had flowed into funds over the past 95 weeks, so the outflow number is miniscule by comparison. ETFs have accounted for 16 percent of inflows this year but only 9 percent of the outflows last week, so they may prove stickier than the fund assets.
The change may be part of growing investor confidence in the level and stability of rates; the loan market’s low duration was seen as a haven during last year’s Taper Tantrum in May and June. In any case, whether this denotes a fundamental change in flows, which might have some effect on the market conditions, or is just a blip will become apparent in the coming weeks.