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| BKLN total return (source: Ycharts) |
Yet the floating-rate nature of the portfolios keeps investors flooding in, as they become less sure about the timing of the Fed's eventual tightening. In fact, relative to the the market size of each of the asset classes, leveraged loans have seen by far the largest inflows.
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| Source: Barclays Capital |
The demand for this asset class can be seen in the outperformance of loan closed-ended funds. These funds can trade at a premium or a discount to NAV, which can result in out/under-performance vs. the underlying index.
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| Source: Barclays Capital |
With the CLO market booming (CLO's securitize these corporate loans), Barclays remains bullish the loan asset class (in spite of the recent rally). There simply isn't enough floating rate product in the market currently to meet this demand.
Barclays Capital: - The insufficient quantity of new loan product has forced investors to continue harvesting the secondary market to avoid accumulating too much cash, as demand technicals continue to be very strong across all major classes of leveraged loan investors. With more than $9bn in new CLOs priced, January was the busiest month for CLO creation since 2007. In addition, loan mutual fund inflows have been robust of late, as investors continue to look for ways to protect against rising interest rates. Cumulative flows for the first four weeks of the year already exceed $3bn. ... Unless rates reverse course and move materially lower, we expect favorable loan flows to continue.
