Leveraged Bank Loan versus High Yield Bond Mutual Funds

Banegas, Ayelen; Goldenring, Jessica

doi:10.17016/FEDS.2019.047

Working Paper

Leveraged Bank Loan versus High Yield Bond Mutual Funds

Abstract: Since the financial crisis, the markets for Bank Loan (BL) and High Yield Bond (HYB) mutual funds (MFs) have grown significantly, with assets under management increasing from $19 billion and $75 billion to close to $117 billion and $225 billion, respectively, as of December 2018. This short paper characterizes the universe of BL MFs and compare it against that of HYB MFs on several dimensions. We document that BL and HYB MFsâ?? respective market share of leverage loans (LL) and high yield (HY) corporate bonds outstanding increased since the mid-2000s. We also show that in terms of portfolio allocations, HYB and BL MFs hold around 60 percent of B, BB and BBB-rated assets and that exposure to foreign fixed-income markets is relatively small for both types of MFs. Finally, we document that net flows as a share of assets were larger and more volatile for BL MFs than for their HYB counterparts and that HYB MFs significantly outperformed BL MFs since early 2000.

Keywords: High Yield Bonds; Leveraged Loans; Mutual Funds;

JEL Classification: G2; G23;

https://doi.org/10.17016/FEDS.2019.047