As business lending picks up, take a look at this ETF


Corporate lending is on the rise, which may open up opportunities for savvy fixed-income investors looking to earn extra yield. Specifically, investors can consider Senior Loans to gain exposure to this loan growth.

“Demand for business loans is rising in the United States as an economic recovery stimulates consumer spending and encourages businesses to increase their inventories, fueling optimism that it will stimulate growth for banks in 2022,” said a report. Reuters article.

“People are restocking,” said Terrance Dolan, chief financial officer of US Bancorp. “They’re starting to make business investments ahead of the consumer spending and economic growth they see in 2022.”

Be in a senior loan position

Fixed income investors looking for business lending opportunities may want to consider an ETF that emphasizes the importance of being in a senior lending position. All of this comes in the convenience of an ETF wrapper with the Invesco Senior Loan ETFs (BKLN).

BKLN seeks to track the investment results of the S&P/LSTA US Leveraged Loan 100 Index. The fund’s advisor and sub-advisor define Senior Loans as including loans referred to as leveraged loans, bank loans and/or variable rate loans.

Banks and other lending institutions generally provide senior loans to corporations, partnerships or other entities. Senior Loans are typically used for financing corporate recapitalizations, acquisitions, leveraged buyouts and refinancing. BKLN’s loan portfolio will include the purchase of loans from banks or other financial institutions through assignments or equity participations.

The inherent risks associated with senior loans are similar to the risks of junk bonds, but have a priority. In the event of default where the company is forced to sell its assets in a liquidation scenario, the senior loan will be paid first. Additionally, Senior Loans are asset-backed unlike junk bonds, making them a more attractive investment option when building a loan portfolio.

BKLN may acquire a direct interest in a Senior Loan from the Agent or another lender through an assignment or an indirect interest in the loan by participating in another lender’s portion of a loan. BKLN sells portfolio loans through an assignment, but it may also sell loan participations to fund repayment claims.

Of course, bond investors want to know what return the ETF can provide. As of February 7, the 30-day SEC yield on BKLN was close to 3%.

For more news, insights and strategy, visit the Chain of innovative ETFs.


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