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Senior loan ETFs are essentially lenders

  • "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.
Comments (1)
  • Hank890
    , contributor
    Comments (719) | Send Message
     
    Are the other floating rate loan etf different from BKLN with respect to trading only on assignment,...the author neglects to say.
    27 Aug 2013, 02:32 PM Reply Like
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