Published Tue, 14 Jul 2020 15:33:51 -0400 on Seeking Alpha
Seeking AlphaETF AnalysisBKLN: Low-Cost Floating Rate Debt Index ETF, 4.62% YieldJul. 14, 2020 3:33 PM ET|| About: Invesco Senior Loan ETF (BKLN)by: Juan de la HozJuan de la Hoz CEF/ETF Income LaboratoryCEF/ETF income and arbitrage strategies, 8%+ portfolio yieldsSummaryInterest rates are at historical lows.
Most fixed rate securities and funds offer low yields, and could suffer sizable losses if rates normalize.
Floating rate funds, including BKLN, can help reduce interest rate risk, and can help investors profit from rising interest rates.
Several readers and subscribers have expressed interest in floating rate funds, as these have minimal downside interest rate risk, and could even profit from rising rates as economic conditions stabilize. Due to this, I decided to take a look at some of the larger floating rate ETFs, to select one that could help investors to reduce these risks, while minimizing losses and expenses.
I settled on the Invesco Senior Loan ETF (BKLN), an index ETF focusing on senior secured floating rate loans from non-investment grade corporations, currently yielding 4.62%. The fund is roughly comparable to high yield corporate bond index ETFs, including the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), but investing in floating rate securities, and with lower yields, returns, risks and volatility.
BKLN is a good investment opportunity for more risk-averse income investors and retirees who wish to reduce their interest rate risk, and protect their portfolios from rising rates. Less risk-averse investors might decide against floating rate funds altogether, or focus on higher-yielding CEF alternatives. Steven Bavaria had a really good article on the latter here.
Floating Rate Bond Comparison and Investment Thesis
I'll start with an analysis of how fixed and floating rate bonds perform as interest rates change. It's a simple subject and analysis, so feel free to skip it... Read more