ETFs that focus on floating rate notes and senior bank loans have been gathering a lot of cash lately as fixed-income investors position for rising interest rates and inflation.
For example, iShares Floating Rate Note ETF (NYSEArca: FLOT) has more than tripled in size since the beginning of the year to $1.4 billion in assets.
On Monday alone, the BlackRock ETF had large inflows reaching nearly $500 million, according to WallachBeth Capital. The floating rate note fund ranks second on the list of best-selling ETFs the past week.
Similarly, PowerShares Senior Loan Portfolio (NYSEArca: BKLN) has been extremely popular so far in 2013 as investors look for bond ETFs that provide protection from rising interest rates.
BKLN has experienced net inflows of $1.7 billion year to date, according to IndexUniverse data, taking total assets to $3.2 billion.
BKLN is designed for investors “who may be looking for floating-rate bonds to protect against rising interest rates,” Morningstar analyst Timothy Strauts writes in a report on the ETF. “Most investors’ portfolios are dominated by fixed-rate bonds. The biggest risk that fixed-rate securities face (aside from default) is the potential for rising interest rates. An easy way to minimize this risk is to diversify a bond portfolio by adding exposure to floating-rate securities.”
BKLN has a 30-day SEC yield of 3.94%.
In another sign of the category’s popularity, State Street Global Advisors and Blackstone Group have partnered on the first actively managed senior loan ETF, which launched earlier this month. [Senior Loan ETFs Yielding 6% Face New Actively Managed Rival]