There are plenty of old pastimes on Wall Street. Among the
most prominent are clarion calls that whenever a particular
sector or market niche becomes popular in short order that a
bubble is right around the corner.
Of course, not all bubble calls are accurate and some take
years to materialize. Sure, those that said gold was in a bubble
when it was at $1,500 an ounce several years ago ended being
right. Sort of. On the way to those bubble criers being "right,"
gold rose to about $1,900 an ounce.
Well, it might just be a matter of time before the bubble
calls migrate over to bank loan
. Consider this: In just the past 30 days, the PowerShares Senior
Loan Portfolio (NYSE:
) has hauled in $740.2 million in assets,
according to PowerShares data
BKLN is the undisputed "big kahuna" of senior loan ETFs. The
ETF is just 26 months old and already has almost $3.8 billion in
AUM, over $1 billion of which came into the ETF in 2012.
Year-to-date, BKLN is by far the top asset-gatherer among
PowerShares ETFs with $2.26 billion in inflows. That compares to
$1.77 billion in year-to-date inflows for the PowerShares S&P
500 Low Volatility Portfolio (NYSE:
More important than its asset-gathering ability, BKLN has
defied talk of bubbles and the end of the
rally in junk bond ETFs
. At this point it is fair to say that everyone that thought the
rally in high-yield bond ETFs was fading was wrong because nearly
all of these ETFs are trading at or near new 52-week highs.
BKLN touched a new 52-week Thursday. Including dividends,
which BKLN delivers monthly, the ETF is up 7.5 percent in the
past year, 2.4 percent year-to-date and 1.2 percent in the past
Bubble Competition While BKLN is the king of the senior loan
ETF space, issuers have realized yield-hungry investors may be
able to support ETFs in this niche. The emergence of competitors
to BKLN is enough to keep the bubble birds crowing. Inflows to
these ETFs perhaps only making the crowing louder.
BKLN's first true competitor, the Highland iBoxx Senior Loan
) debuted in November 2012. Being a one-ETF shop is a lot like
being a one-car NASCAR team. It is possible to be successful, but
the mountain to climb is high. Still, SRLN has
$72.8 million in AUM
Or it can be said SRLN has attracted an average of $12.1
million in assets per month since its debut.
Speaking of rapid accumulation of assets, take a look at the
SPDR Blackstone/GSO Senior Loan ETF (NYSE:
). Despite being 34 basis points pricier per year than BKLN (0.9
percent for SRLN, 0.66 percent for BKLN), the new SPDR offering
has hauled in $160.4 million in AUM just one month of
Undaunted, First Trust launched the First Trust Senior Loan
), an actively managed senior loan ETF, on Thursday.
Myth Busting Rapid accumulation of assets as a harbinger of a
bubble is a theoretical gambit that even if accurate could take
years to prove accurate. That is one issue that should be
highlighted with regards to bank loan ETFs.
Another is the perceived lack of liquidity within the asset
class, a frequent point of criticism by junk bond naysayers.
Along those lines, it should be noted that a 2 million-share
order was executed in BKLN on Thursday,
according to Bloomberg
. That order barely moved the ETF.
In fact, BKLN is showing signs of increased liquidity. In the
second and third quarters of 2012, the ETF had a combined 47
trading days when the midpoint of its bid/ask spread was 50 to 99
basis points above the fund's net asset value. That did not
happen at all in the fourth quarter and the first quarter of this
according to PowerShares data
For more on ETFs, click
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