Below extract courtesy of ETF.com and reporter Cinthia Murphy
When it comes to capturing yield in the corporate debt space, ETF investors are showing a preference this year for senior bank loans over high-yield corporate bonds. That preference, some argue, is largely due to what looks like an overvalued junk corporate bond segment, but it is a choice that has its trade-offs.
In a recent webcast discussing his views on the market, DoubleLine’s Jeff Gundlach pointed out that in 2014, he has opted for bank loans over high-yield corporates for that very reason: overvaluation in the high-yield segment. But as one advisor recently asked, “Is there any asset today that isn’t overvalued?”
The S&P 500 is up 200 percent from its March 2009 lows without serious signs of economic expansion; long-dated Treasurys are at multi-month highs, rallying in tandem with the stock market this year; and riskier fare such as emerging markets are in back in vogue. “Overvalued” could be a relative term these days.
Consider two ETFs as proxy for these separate segments: Continue reading
Courtesy of ETF Trends’ John Spence and Tom Lydon
ETFs that focus on floating rate notes and senior bank loans have been gathering a lot of cash lately as fixed-income investors position for rising interest rates and inflation.
For example, iShares Floating Rate Note ETF (FLOT) has more than tripled in size since the beginning of the year to $1.4 billion in assets.
On Monday alone, the BlackRock ETF had large inflows reaching nearly $500 million, according to WallachBeth Capital. The floating rate note fund ranks second on the list of best-selling ETFs the past week. “Suppressed interest rates and central bank asset purchases have seen bank loan ETFs grow in popularity, as investors look for ways to adjust with inflation,” said Chris Hempstead, WallachBeth’s Head of ETF Execution in a recent note to the firm’s clients.
Similarly, PowerShares Senior Loan Portfolio (BKLN) has been extremely popular so far in 2013 as investors look for bond ETFs that provide protection from rising interest rates.
BKLN has experienced net inflows of $1.7 billion year to date, according to IndexUniverse data, taking total assets to $3.2 billion.
BKLN is designed for investors “who may be looking for floating-rate bonds to protect against rising interest rates,” Morningstar analyst Timothy Strauts writes in a report on the ETF. “Most investors’ portfolios are dominated by fixed-rate bonds. The biggest risk that fixed-rate securities face (aside from default) is the potential for rising interest rates. An easy way to minimize this risk is to diversify a bond portfolio by adding exposure to floating-rate securities.”
BKLN has a 30-day SEC yield of 3.94%. Continue reading