ETF Chart of the Day: Banking on Bank Loans

Today we will attempt a quick roundup of the Senior Loan space, which is now rather well represented in terms of product offerings from several issuers as well as raising a notable amount of assets. The largest fund here is BKLN (PowerShares Senior Loan Portfolio, Expense Ratio 0.65%, Yield 3.94%) which now has more than $5.4 billion in assets under management, but has seen some smaller outflows year to date, losing about $230 million to net redemptions.

BKLN tacks the S&P/LSTA U.S. Leveraged Loan 100 Index, and when we look at current holdings companies like Petsmart, H.J. Heinz, Albertson’s, Asurion, and Avago Tech are among some of the largest positions in the portfolio.

According to fund literature, the makeup of BKLN is such that “The Index is designed to track the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads and interest payments.” Additionally, fund literature states that the index “provides fixed-income investors with attractive yield potential, while mitigating the risks of
rising interest rates.”

Of course, both retail and institutional investors have been concerned with the prospect of rising market interest rates for some time now, so it is no surprise that such a product could raise more than $5 billion in assets since its March 2011 inception.

The second largest fund in this space is offered by State Street, and is SRLN (SPDR Blackstone GSO Senior Loan, Expense Ratio 0.70%, Yield 4%). This is an actively managed ETF, and here we see fund literature stating the following as far as fund attributes: “1) Access the investment management expertise of GSO/Blackstone, the leading player in the senior loan market 2) Provides active management in the highly inefficient loan market 3) Represents the most senior debt of a company and is typically secured by a pledge of all, or most, of the company’s assets 4) Offers a unique fixed income exposure with minimal duration and the potential to increase income in a rising interest rate environment.”