Accessible Version
Liquidity Transformation Risks in U.S. Bank Loan and High-Yield Mutual Funds, Accessible Data
Figure 1: Net assets of BL MF by holdings detail
Billions
Figure 1 shows the net assets of bank loan mutual funds by holding type (total, bank loan, corporate bond, cash equivalent, and other) from 2006 to 2018. Net assets in bank loan mutual funds have increased notably since 2006.
Source: Morningstar Direct.
Holdings detail not reported for all funds, shown uncolored.
Other includes derivatives, domestic and foreign government debt securities, municipal securities, convertible corporate bonds, preferred stock and equity
Figure 2: Net assets of HY MF by holdings detail
Billions
Figure 2 shows net assets of high-yield mutual funds by holding type (total, bank loan, corporate bond, cash equivalent, and other) from 2006 to 2018. Net assets in high-yield mutual funds have increased notably since 2006.
Source: Morningstar Direct.
Holdings detail not reported for all funds, shown uncolored.
Other includes derivatives, domestic and foreign government debt securities, municipal securities, convertible corporate bonds, preferred stock and equity
Figure 3: BL MF returns and flows as percent of lagged net assets
Percent
Figure 3 shows bank loan mutual fund returns and net flows as percent of lagged net assets from 2006 to 2019. Investors tend to buy (sell) assets following periods of positive (negative) performance.
Source: Morningstar Direct.
Figure 4: HY MF returns and flows as percent of lagged net assets
Percent
Figure 4 shows high-yield mutual fund returns and net flows as percent of lagged net assets from 2006 to 2019. Investors tend to buy (sell) assets following periods of positive (negative) performance.
Source: Morningstar Direct.
Figure 5: Liquidity: Bank Loan Funds
Percent
Figure 5 shows the minimum, mean and maximum liquidity ratios (cash plus cash equivalent/net assets) for the ten-largest bank loan mutual funds from 2007 to 2019Q1. This ratio has been relatively stable over the years, on average.
Source: SEC N-Q, N-CSR, N-CSRS filings and staff calculations.
Figure 6: Illiquidity: Bank Loan Funds
Percent
Figure 6 shows the minimum, mean and maximum illiquidity ratios (Level 3 assets/net assets) for the ten largest bank loan mutual funds from 2007 to 2019Q1. This ratio has trended up over the years, on average.
Source: SEC N-Q, N-CSR, N-CSRS filings and staff calculations.
Figure 7: Liquidity: High Yield Bond Funds
Percent
Figure 7 shows the minimum, mean and maximum liquidity ratios (cash plus cash equivalent/net assets) for the ten-largest high-yield bond mutual funds, 2007-2019Q1. This ratio has been relatively stable over the years, on average.
Source: SEC N-Q, N-CSR, N-CSRS filings and staff calculations.
Figure 8: Illiquidity: High Yield Bond Funds
Percent
Figure 8 shows the minimum, mean and maximum illiquidity ratio (Level 3 assets/net assets) for the ten-largest high-yield bond mutual funds from 2007 to 2019Q1. This ratio has narrowed in recent years, on average.
Source: SEC N-Q, N-CSR, N-CSRS filings and staff calculations.
Figure 9: Share of BL MF holdings by credit ratings
Percent
Figure 9 shows shares of bank loan mutual fund holdings by credit ratings from 2006 to 2018. The composition of bank loan mutual funds’ holdings by credit ratings has held relatively stable over the years.
Source: Morningstar Direct
Calculated as a percent of total assets of funds reporting credit rating detail. Cash and equivalents are considered credit AAA.
Figure 10: Share of HY MF holdings by credit ratings
Percent
Figure 10 shows shares of high-yield mutual fund holdings by credit ratings from 2006 to 2018. The composition of high-yield mutual funds’ holdings by credit ratings has held relatively stable over the years.
Source: Morningstar Direct
Calculated as a percent of total assets of funds reporting credit rating detail. Cash and equivalents are considered credit AAA.
Figure 11: Share of BL MF holdings rated below B or unrated
Percent
Figure 11 shows the minimum, mean, and maximum shares of the ten-largest bank loan mutual funds’ holdings that are rated below B or unrated from 2006 to 2018. There have been no outliers in recent years.
Source: Morningstar Direct
Figure 12: Share of HY MF holdings rated below B or unrated
Percent
Figure 12 shows minimum, mean, and maximum shares of the ten-largest high-yield mutual funds’ holdings that are rated below B or unrated from 2006 to 2018. There have been no outliers in recent years.
Source: Morningstar Direct
Figure 13: Borrowing Levels
Percent
Figure 13 shows the minimum, mean, and maximum borrowing (loan balance/net assets) for the ten-largest bank loan mutual funds from 2006 to 2018. Borrowing levels tend to increase during periods of increased redemptions from bank loan mutual funds.
Source: SEC N-CSR, N-CSRS filings and staff calculations.
Figure: Appendix
Percent
Appendix chart shows 15% illiquid assets and Level 3 assets held by Third Avenue Focused Credit Fund from 2014 to 2016Q1. The reported Level 3 and 15% illiquid assets increased from 2014 to 2016 while net assets declined.