Loan participation funds, including mutual funds and exchange-traded funds, took in net new money for the sixth week in seven for the fund-flows week ended Wednesday, March 7, Thomson Reuters Lipper data shows.
The week’s net inflows of $587m were the largest among the taxable bond fund asset groups and brought total net inflows for the peer group to $1.8bn over the last seven weeks. This run of good fortune directly followed a downturn for bank loan funds in which they suffered 14 consecutive weeks of net outflows that saw $4.4bn leave their coffers.
A stronger-than-anticipated January jobs report and a more hawkish tone from the Federal Reserve on interest rates seemed to have contributed significantly to the turnaround for this fund category.
The jobs report showed that the economy added 200,000 jobs for January, but more importantly, the report indicated wage growth was finally heating up. Average hourly wages grew 0.3% in January, driving the year-over-year increase to 2.9%, a level not reached in more than eight years.
The wage increase gave credence to the opinion that the Federal Reserve might react aggressively with interest rate hikes to combat it. This opinion was confirmed with the release of FOMC minutes in which the Fed indicated it views the economy as stronger than it was at year’s end, and that interest rate hikes would be needed in 2018. Rising interest rates make bank loan funds more attractive since the interest rates for bank loans are floating rates. Therefore, when the Fed raises interest rates it causes the yield on these products to increase.
The largest loan participation fund net inflows for this past fund-flows week belong to the Lord Abbett Floating Rate Fund (+$124m), the Oppenheimer Senior Floating Rate Fund (+$71m), and the American Beacon Sound Point Floating Rate Fund (+$67m).
This year, as of March 7, the T. Rowe Price Floating Rate Fund (+$331m), the Fidelity Advisor Floating Rate High Income Fund (+$291m), and the Eaton Vance Floating-Rate Advantage Fund (+$267m) had the largest positive net flows.