For private capital veterans, the recent spate of market volatility is another opportunity to show strength relative to public asset classes.

The threat of higher interest rates, abetted by spiking inflation, is now fully absorbed in the market. After a rocky week for the Dow and Nasdaq, indices firmed. But uncertainty still reigns and investors globally remain hung between Omicron’s grip and the hope for resumed growth.

Loan investors are looking at this set of circumstances and voting with their feet. Last week $2 billion flowed into retail funds, bringing to almost $7 billion of in-flows for the new year, according to S&P/LCD and Lipper. Total assets in these funds now amounts to $93.6 billion, double the level from only a year ago. In contrast, $13 billion flowed out of retail high-yield bond funds.

Last Wednesday’s WSJ (“Junk Loans Shine Amid Market Rout”) highlighted the positive returns leveraged loans have shown so far for 2022, compared to the rout in bonds and stocks (Chart of the Week). “It’s the one asset class in fixed income that tends to go up in value when rates rise,” one manager said. He has increased his loan allocation from 1% in 2019 to 12% today.