Loan ETF
The PowerShares ETF, traded under the ticker of BKLN, is based on the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index, investing at least 80 percent of its holdings in the gauge’s component securities. The S&P/LSTA measure, which tracks the 100 largest dollar-denominated, first-lien leveraged-loans, has climbed to 98.85 cents on the dollar, at about the highest level since July 2007.
Leveraged loans have gained 3.2 percent this year, S&P/LSTA index data show. Junk bonds have returned 5.3 percent, Bank of America Merrill Lynch Index data show. They are a form of high- risk debt that carry ratings of less than Baa3 by Moody’s Investors Service and below BBB- at S&P.
The notes expose investors to “both issuer credit risk as well as market risk -- in this case, the credit risk of the leverage-loan or high-yield market,” said Tim Dulaney, senior financial economist at the Securities Litigation & Consulting Group Inc., a Virginia consulting firm, in an e-mail.
Last year, JPMorgan, as well as BNP Paribas and Credit Suisse Group AG, sold notes tied to the iBoxx indexes of European companies. The issuers sold notes as well as total return swaps, which are derivative contracts used to exchange the economic benefit and risk of loans for steady periodic payments.