Amid concerns about eroding credit quality in the corporate bond market, the Invesco Senior Loan ETF (NYSEArca: BKLN) has recently seen a spate of outflows.
Leveraged loans, also referred to as bank loans or senior loans, are seen as an attractive alternative to traditional high-yield corporate bonds in a rising rate environment. Bank loan securities allow their interest rate to shift, or float, along with the rest of the market, whereas a fixed interest rate stays constant until maturity.
BKLN targets the S&P/LSTA U.S. Leveraged Loan 100 Index. That index “is designed to track the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads and interest payments,” according to Invesco.
“The $6.4 billion Invesco Senior Loan ETF, ticker BKLN, has seen seven straight days of outflows, with investors pulling about $660 million since Nov. 13. More than $129 million came out on Wednesday alone, which reduced the fund’s assets by 2 percent,” reports Bloomberg.
Bank ETFs Usually Stable
Bank loans and ETFs have been popular with some high-yield credit investors when interest rates rise because of the floating rate component featured in these securities. Additionally, BKLN’s underlying index, the S&P/LSTA U.S. Leveraged Loan 100 Index, has a history of stability, except for doing the global financial crisis.