BKLN gathered $399.2 million of net inflows in August, according to IndexUniverse data. The other senior loan ETFs also saw net inflows, while the overall business experienced record redemptions. [Vanguard Sidesteps Record Monthly Outflow for ETFs]
In fact, BKLN is one of the best-selling ETFs in 2013, pulling in nearly $3.9 billion.
“Interest rates have ticked up this year as the economy has continued to gradually improve and, more recently, in response to the Federal Reserve’s signal that it may reduce the pace of its bond purchases. During this span, BKLN has performed exactly as expected. Rising rates have had very little effect on the price of bank loans, given that their duration tends to be very near zero,” says Morningstar analyst Timothy Strauts in a report on the ETF. [Treasury ETFs Drop as 10-Year Yield Nears 3%]
The sector’s biggest risk is the potential for a U.S. recession in the near future, which could trigger defaults in low-credit-quality senior loans. “Bank loans are denoted as ‘high yield’ in large part because the firms issuing them are highly leveraged,” Strauts notes.