Blackstone‘s GSO Capital Partners and State Street Global Advisors have filed to launch an actively managed exchange traded fund that will hold highly risk and potentially lucrative leveraged loans or “junk” bonds.
The SPDR Blackstone/GSO Senior Loan ETF (NYSEArca: SRLN) will try to outperform the S&P/LSTA U.S. Leveraged Loan 100 Index as it invests at least 80% of its net holdings in Senior Loans, which are first lien senior secured floating rate bank loans. In the event of a bankruptcy, Senior Loans, along with other first lien claims, get repaid first, ahead of other existing claims. SRLN has an expense ratio of 0.9%. [Blackstone Teams with State Street for Senior Loan ETF]
Leveraged loans are extended for those that have already incurred a high amount of debt. Consequently, leveraged loans tend to have higher default rates but also have higher interest rates to reflect the greater risk.
However, loan default rates are well below historical averages and the loans currently offer yields above those of Treasuries and higher-quality corporate debt, reports Katy Burne for Fox Business.
Additionally, investors seeking to hedge against potential future interest-rate hikes are using loans since the assets are priced off a floating benchmark, which rises along with absolute rates.