Bank Loan ETFs Still in the Groove as Interest Rates Rise

Exchange Traded Funds (ETFs) logged record outflows in August but that didn’t stop investors from pumping nearly $400 million into the largest fund tracking bank loans as interest rates continue to creep higher.

PowerShares Senior Loan Portfolio (BKLN) is the largest ETF in the category with about $5.3 billion of assets. Investors have been favoring bank loan ETFs as a yield play with protection from rising rates since the funds invest in floating-rate securities.

BKLN is paying a 12-month yield of 4.66%, according to manager Invesco PowerShares.

BKLN gathered $399.2 million of net inflows in August, according to IndexUniverse data.  In fact, BKLN is one of the best-selling ETFs in 2013, pulling in nearly $3.9 billion.

“Interest rates have ticked up this year as the economy has continued to gradually improve and, more recently, in response to the Federal Reserve’s signal that it may reduce the pace of its bond purchases. During this span, BKLN has performed exactly as expected. Rising rates have had very little effect on the price of bank loans, given that their duration tends to be very near zero,” says Morningstar analyst Timothy Strauts in a report on the ETF.

Source:  John Spence, ETF Trends


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

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