Active ETF managers are increasingly choosing priority loans


Lcurrent interest rates, minimal defaults and improving corporate fundamentals are some of the factors attracting investors to high yielding corporate debt this year. Pre-emptive loan funds were major beneficiaries.

Senior loans, also known as bank loans or leveraged loans, attract significant institutional flows this year. Bank loans typically include floating rate components, making this asset class attractive to market participants looking for an enticing, albeit elusive, combination of above-average income and protection from rising rates.

It is also an asset class that has opportunities for active managers. Of course, the widely used S & P / LSTA US Leveraged Loan 100 Index gives 3.21% and is practically unchanged from last year, but active managers can benefit from the lending opportunities in this area, for which many strategies based on on indices are not capable. Bank Loans ETF Investors choose active funds in this category.

“Priority loan ETFs raised $ 7.3 billion from the beginning of the year to July 9, which nearly doubled the investment-style asset base to $ 16 billion,” he said. CFRA Research ETF and Mutual Trust Research Director Todd Rosenbluth in a note. “More than half of the assets of priority loan ETFs are actively managed, as opposed to the broader fixed income universe, which is heavily focused on index trackers.”

Three of the leveraged ETFs on the market have over $ 2 billion in assets under management, and two of the three are active funds.

“Potential benefits from active management include the ability to predict credit default risk using bottom-up analysis, and adjust credit risk based on the macroeconomic environment,” notes Rosenbluth.

In terms of credit risk, Rosenbluth points out that the S & P / LSTA US Leveraged Loan 100 Index allocates about 72% of its combined weight to bonds rated BBB and B, while some active funds in this category allocate 80% or more. their registries. bank loans rated B. In such an environment, some credit risk can be a plus for investors seeking income.

“We have favorable CFRAETF star ratings on a number of actively managed ETF priority loans,” Rosenbluth said.

Investors using active priority lending ETFs may understand something. In the first half of the year, active bond managers across nearly all fixed income segments did better. beat your standards than active money managers did.

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The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.

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