ETF of the Week: SPDR Blackstone Senior Loan ETF

SRLN is an ETF that offers both diversification and extra return opportunities within fixed income allocation. It falls under the alternative fixed income umbrella, offers a decent yield, and its standard deviation is less correlated to the Bloomberg U.S. Aggregate Bond Index (the Agg) than standard fixed income products.

“We see a lot of advisors and a lot of investors who benchmark a big portion of their fixed income allocation to the Agg moving away from the Agg into areas like short duration, active, even cash or areas over on the equity side that might kick off decent dividends to replicate the income that they may have been losing, or even the threat of losing money in bonds like we did with the Agg in 2021,” Lydon explains.

A senior loan is a leveraged loan that is a high-yield bond that takes precedence over other corporate debts if an issuer defaults. SRLN is a fund that has both State Street Global Advisors and Blackstone creating the portfolio of companies that will potentially provide decent yields while also working to avoid companies at risk of default.

Senior loans generally have similar credit ratings to other high-yield bonds, says Jaffe, and can potentially be considered an equivalent on some levels to secured loans by a company. The benefit to this particular fund is that it is actively managed by both State Street and Blackstone, Lydon explains.

“The current yield is close to 4%, pretty good compared to what you might be getting in the U.S. Treasury and the exposure that the 10 year, 20 year, or 30 year might have to a rising rate environment,” says Lydon.

Sectors that SRLN invests in include banking, services, technology, and healthcare, bringing diversification to the fund across a multitude of sectors. It’s a good play for many investors and advisors who are heavily allocated to the Agg. Lydon cautions that advisors should be aware of what is under the hood of the current day Agg, which is of a different quality and duration than it was 10 years ago.

“The message is, you should diversify outside the Agg, and there are a lot of different ways to do it,” Lydon says. “Here’s just another opportunity. Diversification in fixed income in the coming couple years will be key. This is an area that a 5%–10% allocation might make sense but also help your overall yield.”

For more news, information, and strategy, visit ETF Trends.