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The Summertime Case for Floating Rate Notes (FRNs) May 25, 2021
Floating rate notes (FRNs) and related debt gain allure as interest rates rise, confirming a 2021 catalyst for assets like the
While broad demand for high-yield corporate bond mutual funds has been tepid this year, investors are piling into leveraged loan equivalents. On the ETF side of the ledger, BKLN is benefiting from that trend, as highlighted by $1.87 billion of year-to-date inflows as of May 24. Nearly $788 million of that tally arrived in the current quarter.
“Bank loans’ unique floating-rate feature, their hierarchy in the capital structure, and the loan market’s industry composition all make for an appealing relative value opportunity versus high-yield bonds,” says Morningstar analyst Garrett Heine.
These 3 ETFs Sit Atop the Invesco Fund Flows Leaderboard April 28, 2021
An equal weight strategy, pure beta play, and senior loan option are sitting atop Invesco’s year-to-date inflows leaderboard.
At the top of the heap is the
Invesco S&P 500 Equal Weight ETF (RSP), which uses a strategy to diversify holdings in order to eliminate concentration risk. RSP equally weights its holdings, so the ETF leans toward smaller companies with reduced concentration risk when compared to the cap-weighted benchmark S&P 500 Index.
The size factor offers the potential higher-than-benchmark returns associated with relatively smaller stocks within the universe being considered. Furthermore, investors can get this equal weight strategy from RSP at a low 0.20% expense ratio.
Data indicate that market participants are fast becoming reacquainted with leveraged loans.
“U.S. leveraged loan fund coffers grew by another $4 billion in March as retail and institutional investors continued to focus attention toward floating-rate debt,” according to S&P Global Market Intelligence
.
“The most recent monthly inflow was the fifth straight for the asset class AUM has surged by more than $20 billion since November 2020, according to Lipper amid continued talk of inflation and rising Treasury yields, the latter of which reached 1.74% on March 31.”
The Case for Bank Loans
Rising 10-year Treasury yields could be one reason investors are revisiting leveraged loans.
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