Investors are flocking to Invesco’s bank loan ETF, a fund known for providing attractive income.
In the current environment, investors who want to generate as much yield as possible might look to bank loans instead of high yield bonds. Bank loans offer attractive income but are more conservative, adding less risk to portfolios than high yield bonds.
“Senior loans provide an appealing income stream but without the same interest-rate sensitivity as high yield corporate bonds. For some advisors, the reward outweighs the credit risks,” said Todd Rosenbluth, head of research at VettaFi.
Flows into the Invesco Senior Loan ETF’s (BKLN ) have increased dramatically in recent weeks. The fund has accreted $1 billion in net flows over a one-month period, offsetting outflows seen earlier in the year. The ETF has seen $1 billion in net flows year to date.
BKLN has a 30-day SEC yield of 8.34% as of September 26. It takes a lower-duration, higher-quality approach than its average bank loan ETF category peer. The ETF follows the market-weighted performance of the 100 largest senior bank loans. The fund provides attractive income without taking on much interest rate risk.
“Bank loan credit quality has been improving in recent years,” Rosenbluth added.
Under the Hood of Invesco's Bank Loan ETF
BKLN has $5 billion in assets under management and charges 65 basis points.
Senior bank loans are debt securities issued to a company by a bank or similar financial institution and then repackaged and sold to investors. Senior bank loans have variable interest rates and adjust periodically with the market, which is why they’ve surged in popularity in the current rising rate environment.
BKLN is based on the Morningstar LSTA US Leveraged Loan 100 Index. Its underlying 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.
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