Senior Loans: What They Are and a Good ETF to Get Exposure
One way to get more returns is to look at senior loans and Invesco Senior Loan ETFs (BKLN), but what are Senior Loans and what makes them a viable option in today’s market environment?
“Senior loans are debt securities typically used by companies to finance their operations, support business expansion and refinance existing debt,” said an article from CION Investments. “They are known as ‘senior’ loans because of their position at the top of a borrowing company’s capital structure.”
“Senior loans can also be secured by the borrower’s assets (cash, receivables, inventory, property and equipment to name a few) and have payment priority in the event of default,” adds the article. “Although loans can be structured as fixed or variable rate loans, senior loans are generally structured as variable rate loans, which means that the interest paid on these loans will fluctuate with changes in interest rates. interest. “
BKLN seeks to replicate the investment results of the S & P / LSTA US Leveraged Loan 100 Index. The fund‘s advisor and sub-advisor define senior loans to include loans called leveraged loans, bank loans and / or variable rate loans.
Banks and other lending institutions typically provide senior loans to corporations, partnerships, or other entities. Senior Loans are typically used for business recapitalizations, acquisitions, leveraged buyouts, and refinancings. BKLN’s loan portfolio will include the purchase of loans from banks or other financial institutions through divestitures or participations.
“As the investment landscape changes and interest rates continue to hover at near record highs, it is important to consider alternative asset classes that can help investors achieve their financial goals,” adds the CION article. “One of those asset classes that is growing in popularity among the retail investment community is senior lending. Senior Loans can be an attractive addition to an existing fixed income allocation, as they typically offer higher returns than traditional fixed income investments such as T-Bills and CDs, and offer investors the potential to invest. capital appreciation.
In search of a large influx
BKLN finds itself up there with the much-vaunted Invesco Trust QQQ (QQQ) ETF which constantly attracts investor activity. In Invesco’s wide range of ETFs, it has ranked second for fund flows over the past four weeks.
With a monthly dividend yield of around 3.2%, according to Dividend.com, BKLN is certainly a choice for fixed income investors looking to extract more yield from the current market. With its largest stake at 1.76%, BKLN also allocates allocations sparingly in order to minimize concentration risk.
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