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FTSL vs. ETF Alternatives
The First Trust Senior Loan ETF (NasdaqGM: FTSL) will own a diversified portfolio that includes issuers with strong credit metrics. It might also invest in other instruments such as floating-rate loans of companies in financial trouble, floating-rate bonds, money market instruments and fixed-rate debt securities.
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Country: United States
Friday, Jan 243:42 PM
Friday, Jan 243:42 PM| Comment!
- Falling yields this year have failed to boost demand for Treasurys, with Lipper reporting $102M withdrawn from government bond funds in the week ended yesterday.
- A hot sector in 2013 stays hot though. Despite slipping rates, adjustable-rate loan funds attracted $730M last week, the 84th consecutive week of inflows.
- The most popular ETF vehicles for adjustable-rate exposure (credit exposure also) are the bank loan funds: BKLN, SRLN, SNLN, FTSL.
Monday, Jan 612:23 PM
Monday, Jan 612:23 PM| Comment!
- Leveraged loan volume of $4.25T in 2013 was 22% higher than the previous year and trails only 2007's $4.89T of issuance, according to Dealogic. Helping issuance was big demand for product from investors looking not just for yield, but for protection from higher rates - protection leveraged loans can theoretically provide thanks to being floating rate.
- Senior loan mutual funds and ETFs have now recorded 81 consecutive weeks of inflows.
- ETFs: BKLN (the ETF product of the year in 2013), SRLN, SNLN, FTSL
Thursday, Dec 192013, 11:26 AM
Thursday, Dec 192013, 11:26 AM| 12 Comments
- The PowerShares Senior Loan Portfolio (BKLN) was honored with the William F. Sharpe Award for ETF Product of the Year this morning.
- Since opening in March 2011 and becoming the first floating-rate senior loan ETF, this Invesco (IVZ) fund has amassed over $6.2 billion in assets under management, making it easily the largest player in the space.
- "BKLN was a groundbreaking listing for investors seeking to reduce duration in their bond holdings and has become a flagship ETF in this space" stated Gregory Stoeckle, President and Managing Director of Invesco Senior Secured Management, Inc, in a press release.
- Also receiving honors this morning is the PowerShares S&P 500 Downside Hedged Portfolio (PHDG), which was named the ETF Innovation of the Year, along with its underlying index: the S&P 500 Dynamic VEQTOR Index.
- Other senior loan ETFs: SRLN, SNLN, FTSL
- Other VIX ETFs: VXX, UVXY, TVIX, XIV, VIXY, SVXY, VXZ, ZIV, VIXM, VQT, CVOL, XVZ, VIIX, VIXH, ACWV, XVIX, XXV, TVIZ, IVOP, VIIZ
Monday, Nov 182013, 2:38 PM
Monday, Nov 182013, 2:38 PM| Comment!
- "A sudden mass exit from the ETF would be a problem and we've capped our investment in it for that reason," says RiverFront's Rod Smyth of the PowerShares Senior Loan Portfolio (BKLN).
- Not a crank on senior loans, Smyth's group was a seed investor in this particular ETF, but the size and illiquidity of the bank loan market combined with its recent popularity has turned him cautious.
- Earlier: Bank loan funds'defense against interest rate risk may be overrated.
- Other ETFs: SRLN, SNLN, FTSL
Tuesday, Nov 122013, 3:52 PM
Tuesday, Nov 122013, 3:52 PM| 9 Comments
- Beginning in 2016, Fridson sees the high-yield default rate averaging 8.4% over the following four years - this compares to the long-run average of 4.5% and the current rate of just 2.5%. Putting those numbers in perspective, it means the number of issuers defaulting will be triple that during the 2008-09 crisis, and double the number defaulting in the 5-year surge beginning in 1999.
- For those who have bid up junk bond prices to an average of 103.2 cents on the dollar, the average yield down to 5.8%, and remain focused on interest rate risk instead of credit risk ... you've been warned.
- Related ETFs: HYG, JNK, BKLN, HYS, HYLD, SJNK, PHB, BSJF, SRLN, SJB, SNLN, BSJE, BSJD, IHY, FTSL, ANGL, BSJI, BSJG, HYXU, PGHY, XOVR, UJB, BSJH, QLTC, SHYG, BSJK, BSJJ
Sunday, Nov 32013, 9:09 PM
Sunday, Nov 32013, 9:09 PM| Comment!
- 'These record inflows into an ill-understood, more illiquid asset class present a danger to the value of loans if investors begin to reverse course and withdraw assets," writes Craig Sullivan of the $54.8B in inflows into bank loan funds YTD - more than triple the previous annual record in 2010 of $17.9B.
- At the center of his argument is the perception that the floating-rate aspect of bank loans provides rate protection. These loans are typically of 5-9 year maturities, but the floating rate component is priced off of 90-day Libor. A rise in interest rates is of no benefit to the lender as long as the Fed holds short rates near zero. During the big move at the mid-long end of the curve in May and June, 90-day Libor actually fell 2 basis points - i.e., the price of the loan declined, but the yield went nowhere.
- Also, most loans have Libor "floors," typically in the 150 basis points range. Good for lenders in that it provides some minimum yield, it also means - with 90-day Libor today at 26 bps - short rates will have to jump by 125 bps before the yield would move higher.
- While the price movements of bank loans and high-yield bonds are fairly similar, high-yield index returns are ahead of bank loans by about 140 bps YTD, still carry higher yields, and offer call protection (bank loans typically offer none - when spreads drop they get refinanced). It's hard to make the case for choosing bank loans over high yield as long as short rates stay anchored near zero.
- Bank loan ETFs: BKLN, SRLN, SNLN, FTSL.
- High-yield ETFs: HYG, JNK, HYS, HYLD, SJNK, PHB, SJB, ANGL, XOVR, UJB, QLTC.
Friday, Oct 252013, 2:26 PM
Friday, Oct 252013, 2:26 PM| Comment!
- Trying to see around corners, the Fed and the OCC have sent letters to banks asking them to cool it with stripping covenants out of leveraged loans. Speculative-grade borrowers have raised $239.5B in so-called covenant-light loans this year, more than double 2012's amount. Leveraged loans - bank loans to non-investment-grade borrowers - in total have summed to $839.6B, threatening to topple 2007's record of $899B.
- "The concerns they are expressing are not something we are seeing reflected in an increasing default rate,” says Elliot Ganz from an industry group. "If the agencies prevent the banks from underwriting leveraged loans, it’s pretty clear that some deals won’t get done."
- Leveraged loan funds - BKLN, SNLN, SRLN, FTSL - have been among the hotter ETF classes this year.
Friday, Sep 202013, 12:58 PM
Friday, Sep 202013, 12:58 PM| Comment!
- The flip-side of a number of other fixed-income classes (see munis earlier), bank loan funds recorded their 66th consecutive week of inflows, taking in $1.1B according to Lipper. To review, bank loans (also called senior or leveraged loans) are variable-rate, and ahead of junk bonds in the corporate structure.
- The S&P/LSTA Leveraged Loan 100 index is ahead 3.72% YTD, while many fixed-income classes have posted losses.
- Bank loan ETFs: BKLN, SNLN, SRLN, FTSL.
- High yield ETFs: HYG, JNK, PHB, HYLD, HYS, SJB, UJB, SJNK, ANGL, BSJG, BSJH, BSJI, QLTC, XOVR.
Tuesday, Aug 272013, 1:20 PM
Tuesday, Aug 272013, 1:20 PM| 1 Comment
- "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.
Tuesday, Jul 232013, 1:34 PMWith rising rates forcing some issuers out of the market, Moody's expects the U.S. high-yield (HYG, JNK) default rate to rise to 3.2% by November from 2.9% now. It's hardly bad news as that's still well below the 4.5% average since 1993 and the peak rate of 14% in 2009, and Moody's expects the default rate to fall to 2.6% by mid-2014 as issuers return to the market once volatility subsides.
|Tuesday, Jul 232013, 1:34 PM| Comment!
Monday, Jul 222013, 8:51 AMSet in regulatory motion is the iShares 0-5 year High Yield Corporate Bond ETF which is looking like the High Yield Corporate Bond ETF (HYG), but with shorter duration. The SPDR Short Term HIgh Yield Bond ETF (SJNK) also buys high-yield debt of 0-5 year maturity. |Monday, Jul 222013, 8:51 AM| 1 Comment
Wednesday, Jul 102013, 3:51 PMYes, there's been a deterioration in underwriting standards in the high yield market (HYG, JNK), writes Scott Minerd, but it's far from pre-crisis excesses and secondary to other concerns - namely higher rates. To protect against rates, he prefers bank loans (BKLN, SNLN) - senior to high yield paper and floating rate. B-rated bank bonds have barely budged since rates began moving higher in May while BB-rated notes (junk) have declined 3.9%. |Wednesday, Jul 102013, 3:51 PM| Comment!
Wednesday, Jun 262013, 2:48 PMAttempting to answer the question of what the world would look like if the 10-year Treasury yield climbed to 4% while short rates remained about zero, Marty Fridson says spreads on high yield (HYG, JNK) and investment-grade (LQD) corporates would widen to levels seen at the time of the Lehman failure. He's quick to point out this is a stagflation scenario, but if the yields rose because of a booming economy, it would be a different result for corporate paper. |Wednesday, Jun 262013, 2:48 PM| Comment!
Saturday, Jun 12013, 8:48 AMYTD junk bond issuance hits $254B globally, up 53% Y/Y. In the U.S., issuance is up 24% at $130.6B in the first five months of the year and some say the frothy market (see: 5% yield barrier broken) is ripe for a correction. In fact, data suggest cracks are already starting to show in the secondary market: investors pulled a combined $660M from HYG and JNK last week, as fears mount regarding the dreaded "taper". (Previously: Lousy month for high yield; anomalous high yield/ muni spread tightens) |Saturday, Jun 12013, 8:48 AM| 1 Comment
Friday, May 312013, 3:04 PMA nasty close is in store for a lousy month for high yield (HYG -1%) as it loses some appeal amid now-visible Treasury rates. The yield spread over Treasurys was nearly 500 bps a year ago, but just 400 now. Through yesterday, investors have pulled about $1.5B from HYG and JNK according to IndexUniverse. Not falling as far as the index funds and actually seeing inflows this month is AdvisorShares' actively-managed high yield ETF (HYLD). |Friday, May 312013, 3:04 PM| 1 Comment
Friday, May 242013, 11:54 AMA bit of selling by investors in high-yield ETFs (HYG, JNK) has Wall Street banks stepping in - their holdings of junk paper rising 37% to $7.7B in the last 2 weeks. Also at work suggests JPMorgan's team is banks' - used to being cautious the past few years - becoming a little more comfortable with trading activity. |Friday, May 242013, 11:54 AM| Comment!