Bank Loan ETFs: Active or Passive?
June 26th, 2013 at 12:06pm by John Spence
Bank loan ETFs have attracted investors looking for decent yield with some protection against rising interest rates since the funds invest in floating-rate securities.
The asset class has grown so popular that investors can now choose between passive, index-based ETFs or active strategies for senior loans. [Why Bank Loan ETFs are Booming]
PowerShares Senior Loan Portfolio (NYSEArca: BKLN) is the largest ETF in the category with assets of $4.4 billion. It also one of the best-selling ETFs this year with net inflows of $3 billion, according to IndexUniverse data. The fund is based on an index.
Highland/iBoxx Senior Loan ETF (NYSEArca: SNLN) is also index-based.
Meanwhile, First Trust Senior Loan Fund (NasdaqGM: FTSL) and SPDR Blackstone/GSO Senior Loan ETF (NYSEArca: SRLN) are actively managed.
Some investors are opting for an active approach in their bank loan ETF.
For example, of the 50 ETFs launched in the first five months of this year, SPDR Blackstone/GSO Senior Loan (SRLN) gathered the largest flows, according to the fund’s sponsor, State Street Global Advisors.
“Sometimes an active strategy comes along that makes perfect sense,” writes Paul Baiocchi at IndexUniverse in a profile of SRLN.
“In anticipation of rising interest rates, investors rushed to invest in assets with low duration, and SRLN gathered 18% of all inflows into new U.S. ETFs,” according to State Street. “The fund offers access to senior secured bank loans—an asset class comprised of loans issued by below-investment-grade companies with rates that generally reset every three months. SRLN is specifically designed for investors searching for competitive yields, but concerned about duration risk.”
On Thursday, ETF Trends will host a webcast on SRLN, featuring ETF Trends Editor and Publisher Tom Lydon, David Mazza from State Street, and Lee Shaiman from BlackStone Group.
Financial advisors can register here. Accepted for 1 CFP and CIMA CE Credit.
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.