February 21, 2019 / 9:37 PM / 3 months ago

UPDATE 2-U.S.-based leveraged loan funds extend cash withdrawals -Lipper

 (Adds table)
    By Jennifer Ablan
    Feb 21 (Reuters) - Investors pulled money from U.S.-based
leveraged loan funds in the latest week ended Wednesday,
extending their weekly cash withdrawals since November,
according to Refinitiv's Lipper research service on Thursday.
    For the week ended Wednesday, U.S. leveraged loans posted
more than $714 million in outflows, with a four-week moving
average of over negative $716 million, Lipper said.
    Leveraged loans are floating-rate financial instruments, so
investors piled into the market over the past two years when the
Federal Reserve was in rate-hiking mode. "However, some
investors have started to sell their holdings of leveraged loans
recently as doubts have risen about how much higher short-term
interest rates actually will rise," Jay Bryson, global economist
at Wells Fargo Securities said in a report. 
    "Moreover, the evident deceleration occurring in the economy
could negatively affect the ability of some highly levered
companies to adequately service their debt obligations, which
has also contributed to some nervousness in the leveraged loan
market."  
    The Federal Reserve's so-called firm pause in its
interest-rate hiking cycle erodes the incentive to buy loans as
their floating rate nature is seen as a hedge against rising
rates.  
    "With a kinder, gentler Federal Reserve, investors appear to
be less concerned with imminent interest rate hikes and
inflation - both considered to be a catalyst for investors to
embrace adjustable-rates funds," said Tom Roseen, head of
research services at Lipper.
    The slow-Fed backdrop has been favorable toward other parts
of the credit markets including investment-grade and high-yield
junk bonds. U.S.-based investment-grade corporate bond funds
attracted $1.95 billion in the week ended Wednesday, their
fourth consecutive week of inflows, Lipper data showed. 
    U.S.-based high-yield junk bond funds posted inflows of
roughly $284 million in the week ended Wednesday, their fourth
straight week of inflows, Lipper said. 
    "If the long end of the curve is not expected to rise ...,
high yields and other corporates can gain some traction," Roseen
said. "Over the last several months, investors were sure we had
another two to three rate hikes ahead of us. Now that is less
certain."
    For their part, U.S.-based stock funds posted $1.85 billion
of outflows in the week ended Wednesday, following two
consecutive week of inflows, Lipper data showed. 
    "Despite a good week in the equity market, it appears that
investors are willing to sit back and see what type of agreement
that can be made in the US/China trade talks," Roseen said.
    The following is a breakdown of the flows for the week,
including mutual funds and ETFs:    
 Sector                 Flow Chg     %       Assets       Count
                        ($Bil)       Assets  ($Bil)       
 All Equity Funds       -1.848       -0.03   7,206.728    12,144
 Domestic Equities      -0.464       -0.01   5,131.928    8,622
 Non-Domestic Equities  -1.384       -0.07   2,074.800    3,522
 All Taxable Bond       3.023        0.11    2,811.326    5,975
 Funds                                                    
 All Money Market       -11.707      -0.40   2,941.783    1,007
 Funds                                                    
 All Municipal Bond     1.469        0.34    440.444      1,412
 Funds                                                    
 
 (Reporting by Jennifer Ablan; Editing by Tom Brown and Cynthia
Osterman)
  
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