At the end of May, US Retail investors came back to the US leveraged loan market following three previous weeks of net outflows. And whilst this is not necessarily a buy signal to other investors, it marked the climb to a spike last week in Loan research activity in our feeds, by European Institutional Investors. But their interest was not US leveraged loans. It was European leveraged loans.
The long-term risk-adjusted relative performance of European Loans versus U.S. loans, U.S. and European high yield bonds, has got institutions interested.
This is interesting, because often in Europe, the first logical step into the asset class is via U.S. loans. Especially given the size of the U.S. market, the larger number of investment managers in this space, and the wider variety of products to choose from. It could be a sign that European investors are looking to diversify their U.S. loan exposure. Or take their first step into the asset class, closer to home.
It could also be driven by a view on future U.S. Loan, U.S. High Yield and European High Yield default rate risk and recovery rates. The numbers seem to stack in favour of European Loans.
And what may be making life easier for some European institutional investors, is that ESG factors are now integrated into European lenders and borrowers.
What is abundantly clear, is that last week our fixed income feed saw more traffic than any of the 9 asset class feeds in our research platform. This is usually a strong signal that portfolios are about to change.
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