Mutual Funds and Loan Investments

March 01, 2015

The loan market has grown dramatically during the past 20 years in the United States. Recent growth of this market has coincided with the increasing popularity of mutual funds that invest in loans as a retail investment option. While still a relatively modest portion of the overall lending market, assets in these funds grew by an estimated 82.5 percent in 2013.2 Because these funds tend to have higher yields than government and investment grade bond funds and the loans are often floating rates (that is, interest rates charged for loans can increase in response to increases in market interest rates), they have become an increasingly popular investment option in the current low yield environment, particularly with the expectation that the Federal Reserve Board will be raising interest rates.

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