ETF Spotlight on PowerShares Senior Loan Portfolio (NYSEArca: BKLN), part of an ongoing series.
Assets: $187.3 million.
Objective: The PowerShares Senior Loan Portfolio tries to reflect the S&P/LSTA U.S. Leveraged Loan 100 Index, which tracks the market-weighted performance of large institutional leveraged loans according to weightings, spreads and interest payments.
Holdings: The ETF invests in senior loans, including leveraged loans, bank loans and floating-rate loans. “Senior loans, generally made by banks and other lending institutions, are made to or issued by corporations, partnerships or other entities,” according to the prospectus.
What You Should Know:
- BKLN has an expense ratio of 0.83%.
- The fund has 120 holdings.
- Securities by maturity weightings include: 1-5 years 50.79%, 5-10 years 44.08% and 10-15 years 0.42%.
- Asset type allocations include: High-Yield securities 3.78%, Closed-End Funds 4.71% and Loans 91.53%.
- Senior loans — which are also known as leveraged loans, syndicated loans, bank loans or floating rate loans — are privately arranged debt instruments that provide capital to a company and are issued by a bank or financial institution and distributed by a group of banks and institutional investors. [PowerShares’ New ETF Addresses Inflation Concerns.]
- BKLN provides exposure to securities with higher credit risk, but the higher risk comes with higher yields, according to an ETF profile by Timothy Strauts for Morningstar. The floating rate helps compensate investors for the added risk and is better suited for those who believe interest rates will rise over the short-term. [ETF Investors Take on More Risk in Search of Reward.]
- “Investors are anticipating that short term interest rates will rise in the near future,” according to the Morningstar analysis. “An increase in interest rates could cause negative returns in traditional fixed rate bonds so investors have been allocating capital to the bank loan category because of its variable rates.”
The Latest News:
- U.S. companies have signed almost $1 trillion in syndicated loans year-to-date, or an 82% increase year-over-year, reports Prabha Natarajan for Fox Business.
- “Banks really are going back to their bread and butter — loans and investment banking,” commented Michael Collins, senior investment officer at Prudential Fixed Income. “Banks are stepping out on the risk spectrum and lending money.”
- According to Dealogic, companies have issued $498.7 billion in investment-grade loans and $481.5 billion in leveraged loans.
- Due to the lower yields in the bonds market, “a lot of issuers have tapped the leveraged loan market,” remarked Darin Schmatz, director of leveraged finance at Fitch Ratings.
For past stories in this series, visit our ETF Spotlight category.
PowerShares Senior Loan Portfolio
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.