The largest ETF tracking senior bank loans is breaking out as investors look beyond high-yield bonds for their income needs.
In fact, PowerShares Senior Loan Portfolio (NYSEArca: BKLN) was up for the ninth straight session on Tuesday.
“These loans from banks to relatively high-risk issuers have the potential to deliver some attractive returns,” writes Michael Johnston at ETF Database.
“Senior loans aren’t often a core holding in many portfolios, but they can be a very useful addition for those in search of attractive yields. BKLN is a bit expensive, but can offer a way to generate attractive distributions with minimal interest rate risk,” he adds.
BKLN has a yield of nearly 5% and charges an expense ratio of 0.76%.
Morningstar analyst Timothy Strauts describes the senior loan ETF as a satellite holding for investors who are comfortable with higher credit risk and looking for floating-rate bonds to protect against rising interest rates.
“Most investors typically become interested in bank loans when interest rates are expected to rise,” Strauts noted. “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.”
BKLN has posted a total return of 9.6% this year.