- "Nothing screams shadow banking quite like a leveraged loan ETF," writes the FT's Tracey Alloway about a particularly hot corner of the ETF universe. Leveraged (also called bank or senior) loan ETFs are a hot item thanks to the protection they offer against higher rates. The PowerShares Senior Loan Portfolio (BKLN) is one of the year's best-selling ETFs.
- The loans backing the ETF however, only trade "on assignment," meaning the fund is literally a lender - as BKLN's prospectus makes clear. This means funds can't exchange ETF shares for a basket of the underlying - instead they can only exchange for cash, leaving the funds exposed to any cash redemption issues.
- Barclays' Brad Rogoff notes unusually large cash balance in the funds as they prepare for this rainy-day possibility. "Such large cash balances ... will naturally cause some drag on an asset class with already-limited upside."
- Other senior loan ETFs: SNLN, SRLN, FTSL.
- High-yield ETFs: HYG, JNK, PHB, HYLD, HYS, SJB, UJB, SJNK, ANGL, BSJG, BSJH, BSJI, QLTC, XOVR.