Bank loans are safer than traditional high-yield bonds because they are secured by collateral and have lower defaults rates, Strauts adds.
BKLN has grown to become the third-largest speculative-grade debt ETF with $1.2 billion of assets, Bloomberg News reported Tuesday. Bank loan ETFs are attracting flows amid concerns that junk bonds are losing momentum after more than doubling since 2008. The spread between yields on bonds and loans has fallen to less than half the historic average amid the Federal Reserve’s bond-buying programs, it said.
“Loans are a compelling asset class compared to high yield at these levels,” said Jason Rosiak, the head of portfolio management at Pacific Asset Management, in the Bloomberg story. “ETFs regardless of the asset class are becoming a more widely used vehicle to express a view.”
Over the last week, the average trading volume in BKLN has surged to almost three times the average for the past six months, according to the story.
PowerShares Senior Loan Portfolio
Update — Full disclosure: Tom Lydon’s clients own HYG and JNK.