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ETF Specialist

Are Bank-Loan Funds Ready to be Loved Again?

Right now, bank loans look more attractive than high-yield bonds.

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Investors have been craving fixed-income funds with attractive yields over the past few years. Just last year alone, high-yield bond funds attracted $51 billion in new assets and emerging-markets bond funds gained $20 billion. Despite this continuing yield-fest, one area of the market that is not receiving much attention is bank-loan funds. Last year they attracted only $1.3 billion in new assets.

Most investors typically become interested in bank loans when interest rates are expected to rise. With the Federal Reserve committed to maintaining low rates for the next several years, current investor apathy to bank loans shouldn't come as a surprise. But with yields in the high-yield bond sector near historic lows, bank-loan funds are looking more and more attractive on a relative basis.

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Timothy Strauts does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.