Lewis notes that as of August, Moody’s trailing 12-month default rate on traditional junk bonds was 2.9%, but the rate was just 2.2% for  the S&P/LSTA U.S. Leveraged Loan Index. The actively managed SPDR Blackstone/GSO Senior Loan ETF (NYSEArca: SRLN) seeks to beat the S&P/LSTA U.S. Leveraged Loan 100 Index. SRLN debuted in April and already has $571.1 million in assets. [Bank Loan ETFs Keep Growing]

About three-quarters of SRLN’s holdings are rated BB-, B+ or B. Eighty-six percent of BKLN’s holdings are rated BB or B. The $118.1 million Highland/iBoxx Senior Loan ETF (NYSEArca: SNLN) follows  a similar path, but the fund offers a 30-day SEC yield of 4.93%.

As rates have risen, bank loan ETFs have stood tall. BKLN and SRLN are up an average of 2.5% this year while the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) is down by almost the same amount.

“Bank-loan funds regularly and frequently adapt to rate changes, they have virtually no sensitivity to rate changes. Hence, their duration is effectively zero,” according to Lewis.

One way of looking at bank loans is that they are floating rate products because the rates on the loans are reset every month or two months. By comparison, the two largest junk bond ETFs sport durations above four years.

Bank loan funds are also less correlated to stocks than are junk bonds. Over the past year, BKLN has a correlation o 0.514 to the S&P 500 compared to 0.609 for the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG).

SPDR Blackstone/GSO Senior Loan ETF

Tom Lydon’s clients own shares of LQD and HYG.