PowerShares Plans Bank Loan ETF

by on November 9, 2010 | ETFs Mentioned:

As each week seemingly brings multiple new product launches, the ETF industry’s product pipeline continues to refill. Issuers continue to get creative in their efforts to expand their product lineups, laying the groundwork to launch products not currently available in the ETF wrapper. One of the latest filings to hit the SEC’s desk came from PowerShares, which detailed plans for an S&P Bank Loan Portfolio.

The proposed fund would seek to replicate the S&P/LSTA U.S. Leveraged Loan 100 Index, a benchmark designed to track the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads and interest payments. A leveraged loan is debt that is rated below investment grade quality or is unrated but deemed to be of comparable quality.

The index to which the proposed ETF would be linked is a subset of the larger S&P/LTSA Leveraged Loan Index, which includes more than 1,000 securities and has a market value of more than $450 billion. The broader index serves as the benchmark to a handful of mutual funds, many of which have attracted significant assets [use the Mutual Fund To ETF Converter Tool]. Currently, there are three ETFs in the High Yield Bonds ETFdb Category, a surprisingly small number given the enormous size of the junk bond market.

PowerShares Grows (And Contracts)

PowerShares has been active this year on the product development front, already introducing more than a dozen new products. In addition to a line of small cap sector ETFs, the company has introduced monthly leveraged long-term Treasury ETNs (SBND and LBND) and an international corporate bond fund (PICB). The company’s most successful 2010 launch–in terms of assets gathered–has been the CEF Income Composite Portfolio (PCEF), an ETF that invests in closed end funds.

PowerShares has also been active in cutting its losses on unpopular funds, announcing recently that it will shutter ten ETFs before the end of the year. The products to be closed represent a minor portion of the PowerShares lineup; total assets are less than $100 million [see PowerShares Plans Financial ETF Expansion].

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Disclosure: No positions at time of writing.