This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

New ETF Tracks Corporate Loans

Stocks in this article: BKLN

NEW YORK ( TheStreet) -- Invesco (IVZ) PowerShares last week launched the first senior loan exchange-traded fund, the Senior Loan Portfolio (BKLN).

There are have been closed-end funds and traditional mutual funds for investing in corporate loans for years, but some investors were eagerly awaiting an ETF that provides access to this space.

The basic idea is that the fund invests in loans that are either unrated or below investment grade.

The nature of this market is such that the interest rates are adjustable, which can help offset the risk of fixed income investing in a rising-rate environment.

When rates go up, bond prices go down. The longer the maturity of the bond, the more sensitive its price is to rising rates. However, for this new bank loan ETF, this should be much less of an issue, and maybe not even an issue at all.

The fund has 83 holdings and tracks the S&P/LSTA U.S. Leveraged Loan 100 Index. It charges a net expense ratio of 0.83%, and the yield is currently indicated at 4.97%, but of course the yield will fluctuate.

Some of the loans in the fund are to companies that will be familiar to most investors -- for example, Petco and First Data. There are also some names that will be less familiar, such as Texas Competitive Electric Holdings and Transdigm (TDG).

As mentioned above this ETF has been eagerly awaited, but this is a tricky niche of the fixed income market. The financial crisis did a great job of exposing volatility characteristics of many segments, including the senior loan space.

One model for this space is the Invesco Van Kampen Sr Loan Fund (VSLAX). The fund has more than $1 billion in assets under management and got crushed in 2008, dropping about as much as the S&P 500, with a 47% decline at its low.

Additionally, I would note that the ETF structure creates the potential for the market price of the fund to deviate from the fund's intraday indicative value during periods of extreme market behavior.

This was the case with many bond ETFs during the immediate aftermath of Lehman Brothers' collapse. This potential exists because the ETF is more liquid than the holdings within it. This is a normal market function, but finding out about this risk as it is happening in real time is a situation most people would want to avoid.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs