Senior loan ETFs are seeing inflows as investors search for yield

Investors looking for yield are turning to exchange-traded funds that track senior bank loans, says a fund manager.

One example is the Invesco Senior Loan ETF (BKLN) which follows the market-weighted performance of the 100 largest senior bank loans and has a yield of upward of 3.8%.

Senior bank loans are debt securities issued by banks to corporations and they have what’s called variable interest rates meaning they adjust periodically with the market. These typically are favorable in a rising rate environment.

In the last year, the BKLN ETF has gone from steady outflows to strong inflows as investors’ inflationary concerns have grown, Anna Paglia, global head of ETFs and indexed strategies at Invesco, told CNBC’s “ETF Edge” on Monday.

“Now it seems like clients are really looking at that yield story and this fund is the perfect vehicle for that,” added Paglia, who oversees the BKLN ETF.

“They can give you a yield that you might not expect to see if you look at liquid corporate bonds, it is a different structure of financing,” Dave Nadig, financial futurist at VettaFi, said in the same segment. “But this hunt for yield is up and down the product line.”

Both Paglia and Nadig say they’ve seen an uptick of interest in short-term bond funds like BKLN and ultrashort duration funds like Invesco’s Treasury Collateral ETF(CLTL) as investors seek cash alternatives. “Short term” refers to five to six years whereas ultrashort is usually less than six months.

With all these new products generating real yield, advisors may be rethinking how much of the portfolio now should be allocated to bonds, Nadig points out.

“They’re really trying to understand all of these new betas that are coming to market, and how they’re really going to interact in the rate environment that we can project to the next year,” he said.