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In This List

As specter of rate cuts grows, investors retreat from leveraged loan asset class

Outflow streak hits 30 weeks as leveraged loan funds see $686M withdrawal

After Neiman Marcus downgrade, U.S. leveraged loan default rate climbs to 1.24%

Despite aging credit cycle, near-term spike in leveraged loan defaults unlikely

European leveraged loan returns stall in May, though best high yield, equities

As specter of rate cuts grows, investors retreat from leveraged loan asset class

Retail investors pulled $1.36 billion from U.S. loan funds during the week ended March 27, the largest outflow since the week ended Jan. 2. This marks the nineteenth straight outflow for a total of $23.6 billion over that span, according to Lipper data.

The acceleration in the retreat from the asset class comes as the chances of rate hikes in 2019 – a scenario that traditionally benefits floating-rate assets such as leveraged loans – dims. Indeed, the loan market now sees a roughly 63% chance of a cut in rates by year-end, according to CME. That's a decided switch in sentiment from only recently. 

Leveraged Loan Fund Flows chart

This latest reading dwarfs recent outflows. In fact, the four-week trailing average on March 20 was the closest to positive it had been since Nov. 14, at negative $334 million. With this outflow it is now negative $665 million, the steepest level since Feb. 20.

ETFs packed a wallop this week with a $756 million outflow, the largest on record. Mutual fund outflows hit a five-week high, at $601.3 million.

The change due to market conditions during the week was also negative, by $419 million, the third week out of the past four that it has been in the red.

Year to date, including the week ended Jan. 2, retail investors have withdrawn a net $10.1 billion from U.S. loan funds. Assets at the loan funds now total $83.8 billion, of which $9.4 billion (11%) come via ETFs, according to Lipper. —Jon Hemingway

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