Bank Loan ETF Stung by Departures
This article was originally published on ETFTrends.com.
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.
Courtesy: 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.
Related: Investors Continue Flocking to Short-Term Bond ETFs
Bank loans are considered more stable and protective than traditional junk bonds because the former are secured by some form of collateral.
“Investors traded about 29 million shares of BKLN, worth $654 million, on Tuesday, a record trading day for the fund and more than eight times its average daily turnover for the past five years,” according to Bloomberg.
BKLN has 118 holdings with an average days to reset of almost 24.6 days. Ninety-four percent of the fund's holdings are rated BBB, BB or B. BKLN has a 30-day SEC yield of 4.65%.
Until the recent decline in credit markets, leveraged loans had been one of the best-performing corners of the corporate bond market this year.
For more information on the fixed-income space, visit our bond ETFs category.
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