Opinions
Terry Shaunessy
PowerShares Senior Loan Portfolio
BKLN-N
DON'T BUY
Jul 24, 2013
Stock price when the opinion was issued
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Senior bank loans. They effectively differ from high-yield bonds in that 1) they are higher up in the capital structure and 2) they have a floating rate structure. If you are worried about rising interest rates, this is a way to go. A good comparison would be “junk bonds”. He has liked high-yield bonds for a while and has sold them. He is now moving into this ETF.
Most of the ETF’s that are senior bank loans and that are basically yield focused, are basically a substitute for bonds. He doesn’t use these. It is one area he cautions people on, but if you are an individual, maybe you can be nimble enough to work your way around. What he doesn’t like is that the underlying asset is actually illiquid. It is very hard to know what the value of the portfolio is. You have to be very careful on this.
When he was looking at this, he decided to pass on this for 2 reasons. It was very hard to figure out what exactly you were buying. This is supposedly a senior loan portfolio that is leveraged but it is hard to see exactly what it is in. Gives you 4%-4.5% so you are taking equity like risks. If you do corporate bonds or preferred shares, you would get more than that.