Why are investors switching to loans?

In the second week of February there was a $1.5 billion inflow into US loan funds, 2.5% of total net assets, according to BAML. Indeed, average weekly inflows throughout 2013 have equalled 1.5% of total assets. Flows in Europe are starting to follow suit.

This intense focus on loans is a by-product of two things: investor nervousness around the impact on fixed income of interest rate rises and investor nervousness around bond market returns. “As there is more stress around duration risk and the fixed-income market becoming too tightly priced, loans look like terrific value – particularly in the US, where there is a greater prospect of rate rises as leading indicators are more positive,” says Martin Horne, managing director at Babson Capital in London.