Jim Ross, head of State Street’s ETF business, told Bloomberg he expects more funds to list as interest in bank debt grows.
Bank loan ETFs make sense for income investors who think interest rates will eventually start rising, since the funds track floating-rate bonds.
“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,” says Morningstar analyst Timothy Strauts in a profile of BKLN.
“Most investors typically become interested in bank loans when interest rates are expected to rise,” he said.
PowerShares Senior Loan Portfolio
