entrance into the ever-expanding exchange-traded universe. The new fund, which began trading on November 7, 2012, will garner the attention of yield-hungry investors looking to diversify their portfolio’s fixed-income component [see Monthly Dividend ETFdb Portfolio ].
This product launch is well-timed given the persistent low-yield environment at home, which has prompted countless investors to scour the global market for viable sources of worthwhile current income. Furthermore, the new SNLN ETF focuses on a segment of the bond market that remains largely underdeveloped on the ETF front [see Bond ETFs For Every Objective].
Under The Hood: Senior Bank Loans
Senior bank loans have managed to fly under the radar for most as ETFs have only recently opened up the doors to this asset class for mainstream investors; the only other product covering this space, the PowerShares Senior Loan Portfolio (NYSEARCA:BKLN), has managed to attract a whopping $1.2 billion in assets under management since launching in March of 2011 [see Senior Bank Loans: High-Yield With Perks].
This breed of fixed-income securities bears a close resemblance to well-known “junk bonds” since both asset classes are focused on debt with a below investment-grade credit rating. Senior bank loans separate themselves from traditional high-yield debt in two ways; first and foremost, these privately arranged debt instruments carry less risk since they are secured by collateral in the event of a default. As the name suggests, these loans are considered senior to all other claims against the borrower, which gives them a “safer” risk profile compared to unsecured “junk bonds.”
Second, senior bank loans are floating rate debt, which makes them appealing for investors with a long-term horizon. Although rates are ultra-low now, it is inevitable that the Fed will raise rates in the future, which will in turn have a negative impact on fixed-rate debt notes, thereby making senior bank loans quite attractive [see Free Report: How To Pick The Right ETF Every Time].
The Pyxis/iBoxx Senior Loan ETF (SNLN) is linked to the Markit iBoxx USD Liquid Leveraged Loan Index and charges annual management fees of 0.55%, giving it competitive edge over PowerShares’s BKLN, which costs 0.76%.
Written By Stoyan Bojinov From ETF Database Disclosure: No Positions
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