Why Bank Loan ETFs are Booming

Investors have pumped over $2 billion into bank loan Exchange Traded Funds for high-yield options that provide some shelter from higher interest rates.

PowerShares Senior Loan Portfolio (NYSE: BKLN) has surged to $3.4 billion in assets and is currently paying a distribution yield of 4.6%.

Trading volume in the bank loan ETFs has been rising of late according to Chris Hempstead, director of ETF execution services at WallachBeth Capital LLC.

The senior loan ETFs “are all very liquid and each is unique in its own right,” he added.

BKLN, the biggest ETF in the category, has seen its assets more than double since the start of the year, Bloomberg News reports.

Bank loan ETFs make sense for income investors who think interest rates will eventually start rising, since the funds track floating-rate bonds.

“Most investors’ portfolios are dominated by fixed-rate bonds. The biggest risk that fixed-rate securities face (aside from default) is the potential for rising interest rates. An easy way to minimize this risk is to diversify a bond portfolio by adding exposure to floating-rate securities,” says Morningstar analyst Timothy Strauts in a profile of BKLN.

Source:  John Spence, ETF Trends

PowerShares Senior Loan Portfolio (BKLN) is a component of the D2 Capital Management Multi-Asset Income Portfolio.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.