High-Yielding ETFs Make Bank Loan Market More Volatile: Report | Page 2 of 2 | ETF Trends

Ownership of bank loans has changed in recent years after the financial crisis blew up many leveraged hedge funds. Retail investors are filling the void, said Morningstar ETF analyst Timothy Strauts in a recent article. [Bank Loan ETFs: Shelter from the Rising-Rate Storm]

“Bank-loan funds have received record inflows in 2013. Since the end of June, $33 billion has been invested in the category. The five largest monthly inflows on record occurred over the past five months. There is clearly tremendous investor interest in the sector,” Strauts wrote.

He thinks the broader ownership among retail investors is a positive development for the overall health of the bank loan market. “Under ‘new ownership’ small losses will be less likely to cause panicked selling in the retail market the way it did amongst hedge funds meeting margin calls,” Strauts added.

Other analysts aren’t so sure the influx of retail investors will lower volatility in the bank loan market.

“The interesting thing to note though is how the loan market has evolved post-crisis,” said Darin Schmalz, a director at Fitch, in the Bloomberg story. The growth in the proportion of the market owned by individual buyers “will have an impact if investors begin to take money out of the asset class, which will force retail funds and ETFs to sell,” Schmalz said.