As investors continue their search for yield, ETFs that track senior bank loans are seeing increased attention.
The Invesco Senior Loan ETF (BKLN), which follows the market-weighted performance of the 100 largest senior bank loans, has seen a recent surge in inflows. The SEC yield of the fund is 6.6%, according to Invesco’s website.
“BKLN provides relatively strong income generation without taking on much interest rate risk,” Todd Rosenbluth, head of research at VettaFi, said.
Senior bank loans are debt securities issued to a company by a bank or similar financial institution and then repackaged and sold to investors. Notably, senior bank loans have variable interest rates and adjust periodically with the market, which is why they’re gaining in favor in the current rising rate environment.
On “ETF Edge” with Bob Pisani on Monday, Invesco’s Anna Paglia noted that BKLN has seen incredibly healthy flows from clients looking for yield, and said the fund could help people seeking income relief.
Despite starting with outflows at the start of the year, fortune has reversed for BKLN. The fund has seen $239 million in one-month inflows as of October 27. Over a one-year period, BKLN has seen $2.85 billion in net outflows, according to VettaFi.
BKLN is based on the Morningstar LSTA US Leveraged Loan 100 Index. The fund will normally invest at least 80% of its total assets in the component securities that comprise the index. The index tracks the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads, and interest payments, according to Invesco’s website.
The fund does not purchase all of the securities in the index; instead, it utilizes a sampling methodology to seek to achieve its investment objective. Both the fund and index are rebalanced and reconstituted bi-annually, in June and December, according to Invesco’s website.
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