Investors looking for generous income while maintaining a more defensive portfolio should not overlook bank loans.
In the current environment, investors who want to squeeze as much yield as possible might look to bank loans instead of high yield bonds. Bank loans offer an attractive yield but are more conservative, adding less risk to portfolios than high yield bonds.
The (BKLN ) had a 30-day SEC unsubsidized yield of 8.7% as of June 12. BKLN tends to be more defensive than its active peers in the bank loan ETF category. It offers a high yield, but it takes a lower-duration, higher-quality approach.
BKLN has also outpaced its active peers over the past year, which is notable as the lack of Fed support has caused the market to be more challenged.
BKLN has seen $31 million in net outflows year to date. Interest in BKLN has picked up recently, however, as the fund has hauled in $187 million in the past month.
Under the Hood of BKLN
Senior bank loans are debt securities issued to a company by a bank or similar financial institution and then repackaged and sold to investors. They have variable interest rates and adjust periodically with the market.
BKLN is based on the Morningstar LSTA US Leveraged Loan 100 Index. The fund will normally invest at least 80% of its total assets in the component securities that comprise the index. The index tracks the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads, and interest payments, according to Invesco’s website.
The fund does not purchase all of the securities in the index; instead, it utilizes a sampling methodology to seek to achieve its investment objective. Both the fund and index are rebalanced and reconstituted bi-annually, in June and December, according to Invesco’s website.
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