Rising U.S. Treasury yields, the yields on 10-years are up
more than 30 percent in the past 90 days, have sparked rampant
chatter that the multi-decade U.S. bond bull market is coming to
end. Tell that to bank loan ETFs.
Bank loan ETFs have not only dealt with speculation that the
bond bull market is ending, but frequent talk of the demise of
high-yield bonds and criticism the senior loan market is
illiquid, making it more vulnerable to out-sized retrenchment
during periods of elevated market stress.
Cue The Bank Loan ETF Bubble Talk
Doubters of the ability of these ETFs to keep attracting
inflows should consider this: Inflows to bank loan funds (mutual
funds and ETFs), have been positive for 65 consecutive weeks,
according to Barron's
Senior loans, referred to as such because holders of these
bonds are ushered to near the front of the line for some
compensation in the event of issuer default and bankruptcy, hold
secured debt instruments issued by below-investment-grade
companies. The loans have variable rates that adjust every 30 to
90 days and the loan is secured by some form of collateral,
either hard assets, like equipment or buildings, or accounts
in the senior loan ETF space
has increased noticeably this year, the king is still the
PowerShares Senior Loan Portfolio (NYSE:
). Year-to-date, BKLN is the top asset gatherer among PowerShares
ETFs, no small feat given that the firm is the fourth-largest
U.S. ETF sponsor with over 80 ETFs.
BKLN has hauled in over $4 billion in assets this year,
according to PowerShares data
. That is nearly quadruple the second-best PowerShares ETF by
that metric, the PowerShares Buyback Achievers Portfolio (NYSE:
Over the same 90-day period in which Treasury yields have
spiked, BKLN has raked in $925.4 million in new investments. On
the other hand, the PIMCO Total Return ETF (NYSE:
), an ETF that some pundits anointed as the
savior of actively managed ETFs
, has seen outflows of $792 million.
Speaking of actively managed, it is a concept that has gained
traction with bank loan ETFs. The First Trust Senior Loan Fund
) is just five months old and has $66.5 million in assets under
management. The SPDR Blackstone / GSO Senior Loan ETF (NYSE:
) is six months old and has $525.5 million in AUM.
Flows to bank loan ETFs may also be a sign that although
Treasury yields are rising, investors are not as concerned as
previously believed regarding elevated spreads relative to junk
bonds. Over the past three months, the SPDR Barclays High Yield
Bond ETF (NYSE:
) has lost $1.1 billion, but that does not mean the junk bond ETF
trade is dead. With 88 percent of BKLN's holdings rated BB or B,
it is hard to say investors have lost their appetite for
high-yield bond ETFs.
For more on ETFs, click
Disclosure: Author does not own the securities mentioned
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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