Senior floating rate bank loan exchange traded funds have been a popular way for investors to gain high yields while hedging against rising rates. Now, First Trust is listing the first actively managed senior loan ETF in Canada.
On Wednesday, the First Trust Senior Loan ETF (CAD-Hedged) (TSX: FSL & FSL.A) began trading on the Canadian exchange.
“Many fixed-income investors are looking for alternative sources of income that have historically performed well when interest rates have increased, such as senior loans, and we believe an actively managed ETF is an ideal way for investors to access a diversified portfolio of senior loans while gaining enhanced transparency and liquidity,” William Housey, CFA, Senior Vice President and Senior Portfolio Manager for the Leveraged Finance Investment Team of First Trust Advisors, said in a press release.
Senior loan ETFs have been one of the most popular investment strategies this year as the funds’ floating rate component helps mitigate the negative effects of rising interest rates. The PowerShares Senior Loan Portfolio (NYSEArca: BKLN), which tracks the S&P/LSTA U.S. Leveraged Loan 100 Index, has attracted $3.8 billion in assets year-to-date, according to IndexUniverse. BKLN has a 0.66% expense ratio and a 4.02% 30-day SEC yield. [Senior Loan ETFs: ‘Steady Returns and Higher Yields’]
“We believe an allocation to senior loans may address two issues critical to investors in today’s low interest rate environment: the search for yield and the desire for protection against rising interest rates,” Fraser Howell, President & CFO at FT Portfolios Canada Co., said in the press release.
First trust already has an active senior loan ETF on the U.S. markets. The First Trust Senior Loan Fund (NasdaqGM: FTSL) seeks to generate high current income through senior floating rate bank loans. FTSL has a 0.85% expense ratio and a 4.01% 30-day SEC yield.
The SPDR Blackstone/GSO Senior Loan ETF (NYSEArca: SRLN) is another actively managed senior loan ETF that seeks to generate income while preserving capital. SRLN has a gross expense ratio of 0.90% and a 2.67% 30-day SEC yield.
“While an index-based senior loan ETF principally considers the market value of the debt issuance outstanding in its selection methodology, an actively managed ETF gives us the latitude to utilize our rigorous credit process in evaluating an individual company’s ability to repay its debt, which we believe is paramount to driving attractive risk-adjusted and absolute returns over the long term,” Housey added. [2013 Could be the Year of the Bank Loan ETF]
For more information on high-yield debt, visit our high-yield bonds category.
Max Chen contributed to this article.
Story updated to correct expense ratio for SRLN.