UPDATE 2-U.S.-based loan funds saw $1.5-bln record inflow

Fri Apr 12, 2013 2:11pm EDT

By Sam Forgione

NEW YORK, April 12 (Reuters) - Investors worldwide poured $1.5 billion into corporate loan funds based in the United States in the week ended April 10, a weekly record showed, according to Bank of America Merrill Lynch.

Bank of America Merrill Lynch, citing figures from fund-tracking firm EPFR Global, also said on Friday that U.S.-based loan funds' assets under management have grown by 23.5 percent, or $18 billion, so far this year.

That year-to-date inflow exceeds the cumulative inflow into loan funds of $11.5 billion during all of 2012, the report said.

Bond managers, including Kathleen Gaffney of Eaton Vance, have called syndicated loans an "easy trade-off" for pricey junk bonds. In addition to higher standing in the capital structure, an important edge in case of bankruptcy, they are better protected from rising interest rates because they are generally pegged to floating-rate benchmarks. In comparison, the value of fixed-rate securities is hurt by rising rates.

U.S.-based high-yield "junk" bond funds attracted just $62 million in new cash over the week, while high-yield funds based outside of the U.S. had outflows of $212 million. U.S.-based funds that hold investment-grade bonds, which are perceived as safer than high-yield, gained $96 million in the latest week, the weakest inflow so far this year.

Investors gave $822 million to funds that hold Japanese stocks in the latest week, EPFR Global said, following the Bank of Japan's April 4 announcement that it would inject about $1.4 trillion into the economy in less than two years to fight deflation. The inflows to Japanese stock funds have surpassed the $11 billion mark so far this year, the fund-tracker said.

Japan's stimulus move comes after the U.S. Federal Reserve's regular monthly purchases of $85 billion in Treasuries and agency mortgage debt to suppress borrowing costs and spur economic growth domestically.

"We've seen what has happened to the U.S. equity market as our central bank has embarked on stimulus, and people expect the same thing in Japan," Rex Macey, chief investment officer of Wilmington Trust Investment Advisors, said referring to this year's 11 percent run-up in the S&P 500.

Investors also clung to funds that hold Mexican stocks and committed more than $500 million in new cash in the latest week, the biggest weekly inflow in over a decade, according to EPFR Global.

Mexico has benefitted from exports to the United States as the recovery of the world's largest economy has gained momentum, said Macey.

Investors fled German stock funds, meanwhile, and redeemed more than $500 million, the most in 49 weeks according to EPFR Global. Equity funds overall attracted $3.13 billion in the latest week, as investors reached for income and put roughly $1.57 billion of that sum into funds that hold dividend stocks.

The appetite for income in stocks weighed on demand for U.S. and global bond funds, which fell in the latest week as investors committed $3.52 billion, down from $4.89 billion the previous week.

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