Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

Senior Bank Loans: High-Yield With Perks

Thu, Oct 25, 8:16 AM ET, by Michael Johnston

With interest rates stuck at all-time lows, and expected to remain there for some time, investors of all walks have been eager to beef up their portfolio’s current income. Luckily, the ETF universe is vast and investors have handfuls of options when it comes to generating yield; within the fixed-income market, one asset class in particular has managed to fly under the radar for most, although it warrants a closer look from anyone looking to tame overall volatility without sacrificing yield [see Monthly Dividend ETFdb Portfolio].

With ETFs opening up the doors to the global fixed-income market to mainstream investors, many have been quick to flock to well-known segments of the high-yield universe; “junk bonds” from U.S. and foreign issuers have garnered tremendous interest as this asset class has demonstrated the potential to deliver attractive distributions without taking on exorbitant risk. As such, it’s not terribly surprising to see that the two biggest funds in the High Yield Bonds ETFdb Category focus on below investment-grade corporate debt [see Free Report: How To Pick The Right ETF Every Time].

The bigger of the two is the iShares iBoxx High Yield Corporate Bond Fund [etf ticker='HYG'], which boasts over $17 billion in assets under management, while its competitor, the SPDR Barclays Capital High Yield Bond ETF [etf ticker='JNK'] trails behind with a portfolio totaling over $12 billion, showcasing the sheer interest in this lucrative space. The third most popular ETF in this category, however, is the only one of its kind to focus on a particularly attractive, and often overlooked, breed of debt notes: enter the PowerShares Senior Loan Portfolio [etf ticker='BKLN'].

Why You Need A Senior Bank Loan ETF

Bank loans have been flying under the radar for many fixed-income investors as ETFs have only recently opened up the doors to this asset class. Senior bank loans share a lot of common traits with regular “junk bonds,” however, a closer look at their differences reveals noteworthy insights [see also 12 High-Yielding Monthly Distribution Bond ETFs].

First and foremost, senior bank loans are privately arranged debt instruments issued by a bank that provides capital to a company usually with a below investment-grade credit rating. Where these securities differ from “junk bonds” is in their underlying structure; although both of these high-yield corporate debt notes are rated below investment-grade, senior bank loans generally carry less risk than their traditional “junk bond” counterparts as they are secured by collateral in the event of a default. By nature, these loans are considered senior to all other claims against the borrower, which means that in the unlikely event of bankruptcy the senior bank loan is the first to be repaid ahead of other debt obligations [see also 8% Yield ETFdb Portfolio].

In addition to boasting a safer risk profile, senior bank loans are also more favorably positioned over the long-term because they are floating rate instruments. Although interest rates are at historically low levels now, there is no doubt that the Fed will eventually raise rates to curb inflation. In the event of an interest rate hike, fixed-rate bonds of all sorts, including those found in HYG and JNK, would suffer far more than floating rate securities; the ability to keep pace with interest-rate changes effectively makes senior bank loans more stable than typical bond funds for buy-and-hold investors of the long-haul.

Inside BKLN’s Portfolio

The PowerShares Senior Loan Portfolio [etf ticker='BKLN'] offers exposure to an attractive corner of the “junk bond” space that has largely been overlooked. Because these debt notes are floating rate and secured by collateral, it’s no surprise they offer a bit less in the way of yield compared to offerings like HYG; when comparing recent 30-day SEC yields, we see that BKLN boasts a 4.89% distribution, versus the more popular HYG which features a 5.48% distribution. The smaller dividend payout is, however, fairly compensated as BKLN’s underlying holdings are effectively secured, floating rate, high-yield debt notes while virtually all other competitors in the space offer exposure to unsecured, fixed-rate, high-yield debt [try our ETF Head-To-Head Tool].

As the only ETF targeting this segment of the high-yield bond market, BKLN has managed to accumulate an impressive $1 billion in assets under management since launching fairly recently in early 2011. Digging deeper, we see that this fund features a well-balanced portfolio; BKLN is comprised of nearly 140 securities in total and it allocates less than one-fifth of total assets to its top ten holdings. From a cost perspective, BKLN is not the cheapest in the space, although its above-average 0.76% expense ratio is certainly well worth the few extra basis points considering that it’s the only one of its kind [see BKLN Fact Sheet].

Investors looking beef up their portfolio’s yield while simultaneously diversifying their fixed income component ought to take a closer look at the PowerShares BKLN ETF as it stands to offer a truly compelling strategy that many stand to benefit from.

Follow me on Twitter @SBojinov

[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]

Disclosure: No positions at time of writing.

Click here to read the original article on ETFdb.com.


SDI Glossary: "Bond" Definition
SDI Glossary: "Dividend" Definition
SDI Glossary: "ETFs" Definition
SDI Glossary: "the Fed" Definition
SDI Glossary: "iShares" Definition
SDI Glossary: "Yield" Definition
This Article's Word Cloud:   BKLN   ETFdb   High   Portfolio   PowerShares   Senior   Yield   although   bank   been   below   bond   bonds   closer   debt   event   fixed   floating   from   grade   have   high   income   interest   investment   investors   junk   loans   many   market   more   notes   offer   only   other   portfolio   rate   risk   senior   space   than   that   their   these   this   ticker   time   under   with   yield

| More

IFEU Crosses Above Key Moving Average Level
Wed, Nov 26, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares Europe Developed Real Estate ETF (IFEU) crossed ...

McGraw Hill Financial Achieves #99 Analyst Rank, Surpassing General Dynamics
Wed, Nov 26, 12:14 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

SPDR Gold Shares Experiences Big Outflow
Wed, Nov 26, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: GLD Exchange traded funds (ETFs) trade just like stocks, but ...

DFE: ETF Outflow Alert
Wed, Nov 26, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: DFE Exchange traded funds (ETFs) trade just like stocks, but ...

18.2% of IWC Holdings Seeing Recent Insider Buys
Wed, Nov 26, 9:44 AM ET, by ETF Channel

A look at the weighted underlying holdings of the iShares Micro-Cap ETF (IWC) shows an ...

iShares U.S. Oil & Gas Exploration & Production ETF -- Insider Buying Index Registering 11.9%
Wed, Nov 26, 9:44 AM ET, by ETF Channel

A look at the weighted underlying holdings of the iShares U.S. Oil & Gas Exploration ...

Why Time Warner Cable is a Top Socially Responsible Dividend Stock (TWC)
Wed, Nov 26, 8:44 AM ET, by ETF Channel

Time Warner Cable Inc (TWC) has been named a Top Socially Responsible Dividend Stock by ...

ISTB Crosses Above Key Moving Average Level
Tue, Nov 25, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the iShares Core Short-Term USD Bond ETF (ISTB) crossed ...

EPV Crowded With Sellers
Tue, Nov 25, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the ProShares UltraShort FTSE Europe ETF (EPV) entered into ...

PKW, LOW, GM, DTV: ETF Outflow Alert
Tue, Nov 25, 1:14 PM ET, by ETF Channel

Symbols mentioned in this story: PKW, LOW, GM, DTV Exchange traded funds (ETFs) trade just ...

FAS, Y, ADS, ALL: ETF Outflow Alert
Tue, Nov 25, 1:14 PM ET, by ETF Channel

Symbols mentioned in this story: FAS, Y, ADS, ALL Exchange traded funds (ETFs) trade just ...

ProShares Ultra Nasdaq Biotechnology Experiences Big Inflow
Tue, Nov 25, 1:14 PM ET, by ETF Channel

Symbols mentioned in this story: BIB, ACAD, ACRX, ACHN Exchange traded funds (ETFs) trade just ...

Borg Warner Takes Over #27 Spot From Salesforce.com
Tue, Nov 25, 12:34 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

FJP Crosses Above Key Moving Average Level
Tue, Nov 25, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the First Trust Japan AlphaDEX Fund ETF (FJP) crossed ...

SQQQ Crowded With Sellers
Mon, Nov 24, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the ProShares UltraPro Short QQQ ETF (SQQQ) entered into ...

iShares MSCI Colombia Capped (ICOL) Enters Oversold Territory
Mon, Nov 24, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the iShares MSCI Colombia Capped ETF (ICOL) entered into ...

ICN Makes Notable Cross Below Critical Moving Average
Mon, Nov 24, 12:14 PM ET, by ETF Channel

In trading on Monday, shares of the WisdomTree Indian Rupee Strategy Fund ETF (ICN) crossed ...

SRS Crosses Critical Technical Indicator
Mon, Nov 24, 11:44 AM ET, by ETF Channel

In trading on Monday, shares of the ProShares UltraShort Real Estate ETF (SRS) entered into ...

SPY, BA, COP, BIIB: ETF Outflow Alert
Mon, Nov 24, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: SPY, BA, COP, BIIB Exchange traded funds (ETFs) trade just ...

BKLN: Large Outflows Detected at ETF
Mon, Nov 24, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: BKLN Exchange traded funds (ETFs) trade just like stocks, but ...

TBT: Large Outflows Detected at ETF
Mon, Nov 24, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: TBT Exchange traded funds (ETFs) trade just like stocks, but ...

IFAS Crosses Above Key Moving Average Level
Fri, Nov 21, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the iShares Asia Developed Real Estate ETF (IFAS) crossed ...

EEHB Makes Bullish Cross Above Critical Moving Average
Fri, Nov 21, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the PowerShares S&P Emerging Markets High Beta Portfolio ETF ...

DGT Makes Bullish Cross Above Critical Moving Average
Fri, Nov 21, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the SPDR Global Dow ETF (DGT) crossed above their ...

XL Group Moves Up In Analyst Rankings, Passing Stryker
Fri, Nov 21, 11:54 AM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

RWX Makes Bullish Cross Above Critical Moving Average
Fri, Nov 21, 11:34 AM ET, by ETF Channel

In trading on Friday, shares of the SPDR Dow Jones International Real Estate ETF (RWX) ...

BLDRS Emerging Markets 50 ADR Index Fund Breaks Above 200-Day Moving Average - Bullish for ADRE
Fri, Nov 21, 11:34 AM ET, by ETF Channel

In trading on Friday, shares of the BLDRS Emerging Markets 50 ADR Index Fund ETF ...

Guggenheim Timber (CUT) Shares Cross Above 200 DMA
Fri, Nov 21, 11:34 AM ET, by ETF Channel

In trading on Friday, shares of the Guggenheim Timber ETF (CUT) crossed above their 200 ...

iShares Asia 50 Breaks Above 200-Day Moving Average - Bullish for AIA
Fri, Nov 21, 11:34 AM ET, by ETF Channel

In trading on Friday, shares of the iShares Asia 50 ETF (AIA) crossed above their ...

First Trust Materials AlphaDEX Fund (FXZ) Shares Cross Above 200 DMA
Fri, Nov 21, 11:34 AM ET, by ETF Channel

In trading on Friday, shares of the First Trust Materials AlphaDEX Fund ETF (FXZ) crossed ...

AXJL Makes Bullish Cross Above Critical Moving Average
Fri, Nov 21, 11:24 AM ET, by ETF Channel

In trading on Friday, shares of the Asia Pacific ex-Japan ETF (AXJL) crossed above their ...

JPP Crosses Above Key Moving Average Level
Fri, Nov 21, 11:24 AM ET, by ETF Channel

In trading on Friday, shares of the SPDR Russell/Nomura PRIME Japan ETF (JPP) crossed above ...

DRW Makes Bullish Cross Above Critical Moving Average
Fri, Nov 21, 11:24 AM ET, by ETF Channel

In trading on Friday, shares of the WisdomTree Global ex-U.S. Real Estate Fund ETF (DRW) ...

iShares iBoxx $ Investment Grade Corporate Bond ETF Experiences Big Inflow
Fri, Nov 21, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: LQD Exchange traded funds (ETFs) trade just like stocks, but ...

IWP, VRTX, MHFI, INTU: Large Inflows Detected at ETF
Fri, Nov 21, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: IWP, VRTX, MHFI, INTU Exchange traded funds (ETFs) trade just ...

IWV, MA, HON, TWX: Large Inflows Detected at ETF
Fri, Nov 21, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: IWV, MA, HON, TWX Exchange traded funds (ETFs) trade just ...

12.6% of XHB Holdings Seeing Recent Insider Buys
Fri, Nov 21, 9:54 AM ET, by ETF Channel

A look at the weighted underlying holdings of the SPDR S&P Homebuilders ETF (XHB) shows ...

First Trust RBA American Industrial Renaissance ETF -- Insider Buying Index Registering 15.6%
Fri, Nov 21, 9:54 AM ET, by ETF Channel

A look at the weighted underlying holdings of the First Trust RBA American Industrial Renaissance ...

AES Moves Up In Analyst Rankings, Passing TE Connectivity
Thu, Nov 20, 12:14 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

AGG: Large Inflows Detected at ETF
Thu, Nov 20, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: AGG Exchange traded funds (ETFs) trade just like stocks, but ...

Vanguard FTSE Developed Markets ETF Experiences Big Inflow
Thu, Nov 20, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: VEA, NSRGY, NVS, TM Exchange traded funds (ETFs) trade just ...

DIA, V, GS, IBM: Large Inflows Detected at ETF
Thu, Nov 20, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: DIA, V, GS, IBM Exchange traded funds (ETFs) trade just ...

EDZ Crosses Above Key Moving Average Level
Wed, Nov 19, 3:54 PM ET, by ETF Channel

In trading on Wednesday, shares of the Daily Emerging Markets Bear 3x Shares ETF (EDZ) ...

ConocoPhillips Takes Over #116 Spot From Mallinckrodt
Wed, Nov 19, 11:54 AM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

SMB Crosses Below Key Moving Average Level
Wed, Nov 19, 11:24 AM ET, by ETF Channel

In trading on Wednesday, shares of the Short Municipal Index ETF (SMB) crossed below their ...

SPDR Barclays Long Term Corporate Bond (LWC) Shares Cross Below 200 DMA
Wed, Nov 19, 11:24 AM ET, by ETF Channel

In trading on Wednesday, shares of the SPDR Barclays Long Term Corporate Bond ETF (LWC) ...

IYLD Makes Notable Cross Below Critical Moving Average
Wed, Nov 19, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the iShares Morningstar Multi-Asset Income ETF (IYLD) crossed below ...

AAXJ Makes Notable Cross Below Critical Moving Average
Wed, Nov 19, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the iShares MSCI All Country Asia ex Japan ETF ...

KRE, WAL, MBFI, ONB: Large Outflows Detected at ETF
Wed, Nov 19, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: KRE, WAL, MBFI, ONB Exchange traded funds (ETFs) trade just ...

PGX: Large Inflows Detected at ETF
Wed, Nov 19, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: PGX Exchange traded funds (ETFs) trade just like stocks, but ...

Related videos | all videos »
  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

Senior Bank Loans: High-Yield With Perks | Self Directed Investor | Copyright © 2008 - 2014, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of over 1000 individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.