Wed, May 13, 12:02 PM
- Vanguard Group, Guggenheim Investments, and First Trust are among U.S. ETF providers lining up bank credit lines or expanding existing ones in order to meet a rash of redemptions in some future market panic, writes Ashley Lau and Michael Flaherty.
- At issue are ETFs in less liquid corners of the fixed-income world - bank loans (also known as senior or leveraged loans) and high-yield come to mind.
- State Street (NYSE:STT) and Invesco's (NYSE:IVZ) PowerShares have credit lines for their respective senior loan ETFs (SRLN, BKLN, VVR), with SRLN having exclusive access to $100M of the $300M total credit facility State Street has in place.
- BlackRock (NYSE:BLK) hasn't opened any lines for its bond funds as it doesn't trade in these less liquid areas, but it has opened a line for some its emerging market stock ETFs.
- Senior loan ETFs: BKLN, OXLC, PPR, EFR, VVR, PHD, SRLN, NSL, BGB, BGX, FCT, SNLN, EVF, ECC, AFT, BSL, TSLF, FTSL, TLI, BHL
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- Closed-end bond funds had a good October - up 1.89% on a per-share basis while NAV grew 1.96%. This means, however, the sizable discount to NAV for the group of 6.04% failed to budge from a month earlier.
- "The materially large discounts represents an opportunity for investors to reduce risk," says Stifel's Alexander Reiss and Thomas Boyes. The boost an investor gets when buying a CEF at a discount is what they term the Discount Yield Benefit (DYB), and - among other things - it can make the net cost of owning a CEF cheaper than traditional lower-cost options like passively-managed index funds.
- Current favorites of the team are: ERC, MCR, MMT, and FT, all of which trade at discounts to NAV of about 12%.
- Senior loan funds have remained more popular (possibly a danger, according to this analysis) and trade at an average discount of just 3.61%. The team's favorites are FCT, PPR, and VVR.
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FCT vs. ETF Alternatives
The Fund is a diversified investment management company that seeks a high level of current income with a secondary objective of capital preservation. It will pursue its investment objectives through investment in a portfolio of senior secured floating rate
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