2013 can easily be labeled as a year which brought out clear
winners and losers in the investment world. While equities
clearly won the show, bonds and commodities were struggling in
PWRSH-SNR LN PR (BKLN): ETF Research Reports
VANGD-SHT TRM B (BSV): ETF Research Reports
ISHARS-FL RT BD (FLOT): ETF Research Reports
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As concerns over Fed scaling down the asset purchase program
loomed large after May last year, yields moved northwards, while
bond prices struggled southwards.
Among the concerns about rising rates,
longer terms bonds were the worst hit last year, while high yield
bonds managed to deliver decent returns. (read:
3 Niche ETFs That Will Keep Flying
PowerShares Senior Loan ETF
Vanguard Short-Term Bond ETF
iShares Floating Rate Note ETF
) were the three most popular ETFs to attract investor interest
in terms of asset under management.
While BKLN has continued with its bull run, we have highlighted
two other ETFs besides BKLN, which are seeing heavy inflows this
As the Fed unfolds its taper program, these funds could be
interesting picks for this year Investors should thus keep a
sharp eye on the funds mentioned below.
PowerShares Senior Loan ETF
Like 2013, this fund has turned out to be the most popular bond
ETF in 2014 in terms of asset under management (AUM). BKLN has
attracted a whopping $266.36 million since the start of the year.
This makes BKLN's total AUM worth $6.7 billion.
This fund tracks the returns of the S&P/LSTA U.S. Leveraged
Loan 100 Index, delivering returns of the senior loan market.
Senior Loan ETFs: The Best Bet for Rising
Senior loans, also known as leveraged loans, are private debt
instruments issued by a bank and syndicated by a group of banks
or institutional investors. These instruments usually have
below-investment grade credit ratings and as such pay a high
These floating rate instruments have become quite popular among
investors as they greatly reduce risks. This makes these
securities an ideal choice in a rising rate environment, while
still paying out a solid level of income to investors.
The product holds 126 bonds having maturities of less than 10
years. With the average days to reset being just over 21,
interest rate risk is negligible. The fund focuses on
non-investment corporate bonds that have credit ratings of BBB or
The fund has an attractive dividend yield of 4.30% and is up
0.57% so far this year. BKLN charges investors 66 basis points as
PIMCO 0-5 Year High Yield Corporate Bond Index
Although tapering has started from this month, the Fed has
promised to keep interest rates low till the unemployment rate
drops below 6.5%. Thus, a rock-bottom interest rate
environment prevailing in the U.S. currently is encouraging
investors to go for a high-yield option.
Moreover, even if rates rise in the near future, short duration
bonds protect investors from rising rates.(read:
HYLD: The Best Choice Among High Yield Bond
As such HYS has attracted the second best fund inflow within the
fixed income space. The fund saw its assets rise by $170.4
million since the start of the year, which takes its total AUM to
The ETF follows the the BofA Merrill Lynch 0-5 Year US High Yield
Constrained Index holding 353 stocks in its basket. It targets
the short end of the yield curve with average maturity of 2.81
years and average duration of 1.91 years, suggesting lower
interest rate and default risks.
The fund sports a dividend yield of 4.33% and charges investors
55 basis points as fees. HYS returned 6.63% last year and is up
0.31% so far this year.
iShares 7-10 Year Treasury Bond ETF
This fund tracks the Barclays U.S. 7-10 Year Treasury Bond Index
and has gathered around $160.32 million worth of assets since the
beginning of the year. Thus, the fund manages a total asset base
of $3.8 billion and is one of the most popular funds within the
government bond space.
The fund provides exposure to U.S. Treasury bonds having
maturities between 7 and 10 years and holds 15 securities in its
basket. The product holds only investment grade bonds paying a
fixed rate of yield.
IEF targets the intermediate end of the yield curve with a
weighted average maturity of 8.41 years. The fund has an
effective duration of 7.51 years and as such is comparatively
more sensitive to interest rate changes than short term bonds
The fund returned a negative 6.12% last year. However, with
disappointing jobs data and low inflation, leading to speculation
that the taper may not be at the pace earlier expected, , this
fund has gained some stability. Ithas added 2.03% in the
year-to-date time frame.
Also, with 15 basis points as fees, the fund is one of the
cheapest options in its space. (read
: 3 Ways to Play Rising Rates with Inverse
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