Senior loans, such as those held by BKLN, are debt instruments that due to their senior status, move the holders of these loans to the front of line for some compensation in the event the issuing party declares bankruptcy.
Adding to the allure of senior loan funds beyond their high yields is that these loans have performed well during periods of economic stress. For example, the Credit Suisse Leveraged Loan Index generated positive returns from 2008-2010 even as senior loan default rates reached record highs, according to Invesco data. Senior loan default rates peaked at 10.8% in late 2009, but the historical default rate is around 3%.
PowerShares Senior Loan Portfolio
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of BSV.