As investors scour the markets for income-generating assets, some are beginning to look to alternative, off-the-beaten-track assets. In response to the growing demand, Blackstone, a leading private-equity and alternative investment manager, is partnering with State Street Global Advisors, the firm behind the SPDR brand, to launch a new senior loan exchange traded fund.
The SPDR Blackstone/GSO Senior Loan ETF (SRLN) will try to outperform the S&P/LSTA U.S. Leveraged Loan 100 Index as it invests at least 80% of its net holdings in Senior Loans, which are first lien senior secured floating rate bank loans. In the event of a bankruptcy, Senior Loans, along with other first lien claims, get repaid first, ahead of other existing claims. SRLN has an expense ratio of 0.9%.
The majority of the fund will consist of Senior Loans from North American businesses, and may include some outside of North America, according to ETF Daily News.
The sub-advisor will be investing in below investment grade quality Senior Loans but also target companies that have developed stable positions and sufficient cash flows. Specifically, the sub-advisor will look for companies with advantages in scale, scope, customer loyalty, product pricing, or product quality versus their competitors.
The new fund will be competing with the PowerShares Senior Loan Portfolio (BKLN), which has attracted $158 million in the first quarter, Bloomberg reports. BKLN has an expense ratio of 0.76%. These investments have attracted greater attention as the Fed raises its protections for inflation to 1.9% to 2% from 1.4% to 1.8% last week.
"If a product is successful, you often find that other ETF managers will launch products offering exposure to the same asset class," said Deborah Fuhr, who headed ETF research at BlackRock before leaving last year to help found ETF Global Insight. "ETFs have seen significant inflows while mutual funds really haven't."
"There are going to be buyers" of loan ETFs, Jason Rosiak, head of portfolio management at Pacific Asset Management, said in the article. "It's just a matter of what percentage of the market it will become. It has become a fairly high portion of the market" for junk bonds.
The S&P's/LSTA U.S. Leveraged Loan 100 Index has gained 1.4% over the last two months, compared to the 1.1% rise in U.S. dollar-denominated high-yield bonds, according to Bank of America Merill Lynch Index data.
Max Chen contributed to this article.