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Metric | 1-Year | 3-Year | 5-Year | 10-Year |
|---|---|---|---|---|
Net asset value | 6.14% | 8.68% | 5.39% | 4.53% |
Market price | 6.40% | 8.71% | 5.52% | 4.59% |
By owning a type of corporate credit known as senior loans -- sometimes called leveraged loans or bank loans -- this fund offers a noticeable yield pickup over not only Treasury bonds but also investment-grade corporate bonds.
At the same time, senior loans carry slightly less risk than traditional high-yield bonds because of where they sit in the capital structure. However, these advantages come with quirks and drawbacks that can surprise beginner ETF investors.
While this ETF can be a potent addition to a long-term portfolio, it's essential to understand how it works, how it behaves in different markets, and what risks come with it.
This passive ETF tracks the Morningstar LSTA US Leveraged Loan 100 index, a market cap-weighted benchmark of the largest and most liquid leveraged loans. Importantly, the ETF does not fully replicate the index.
Instead, it uses a sampling technique, meaning the portfolio holds a representative slice of the market rather than every loan in the benchmark. The goal is to lower trading costs and improve liquidity.
The index is rebalanced and reconstituted semiannually in June and December. Rebalancing adjusts existing weights, while reconstitution updates the list of eligible loans based on size and liquidity rules.
Senior loans are secured, first-lien credit instruments, meaning lenders have priority if the borrower defaults. These loans sit above unsecured corporate bonds, preferred shares, and equity. Many are floating-rate loans tied to the Secure Overnight Financing Rate (SOFR) -- a benchmark rate for the cost of overnight cash borrowing -- so their interest payments adjust as benchmark rates move.
The ETF launched in March 2011 and has grown to almost $6.6 billion in assets under management.
The ETF currently holds 177 senior loans. The weighted average maturity is 4.68 years, and the average coupon is 6.87%. Because these are floating-rate loans, that coupon can rise or fall depending on the SOFR. Higher rates increase income, while falling rates reduce it.
A key metric for this ETF is the 36.86 days-to-reset figure, which reflects how quickly the loans reset to new interest rates. The shorter the reset period, the faster the portfolio responds to changes in the SOFR.
Senior loans are often issued by private companies, so this ETF holds credit from both public and private borrowers. For example, the ETF's largest position -- about 1.7% of total assets -- is a loan made to X, the company formerly known as Twitter. This loan matures in October 2029 and pays a 10.45% coupon.
Start with your objectives. If you're an income investor, this ETF's high yield makes it worth considering. Next, assess your risk tolerance: Senior loans can be volatile, and in periods of market stress, the ETF may behave more like a stock than a traditional bond.
If you're comfortable owning below-investment-grade credit backed by first-lien collateral and you understand the nuances of floating-rate loans, this ETF might be appropriate. But recognize what you're really buying and how it fits into your broader portfolio.
Yes. The current 30-day Securities and Exchange Commission (SEC) yield is 6.36%, paid out monthly. Because senior loans generate ordinary income, these distributions are not tax-efficient in taxable accounts.
The expense ratio is 0.67, meaning you pay $67 annually for every $10,000 invested. This is higher than most passive bond ETFs but typical for funds that track more complex credit markets.
This ETF is one of the oldest and most recognizable senior loan funds on the market, but that doesn't automatically make it the best choice. If you're exploring this asset class, compare fees, liquidity, and methodology across competitors.
Senior loan exposure can be useful but only when you fully understand the risks, the credit quality, and how floating-rate loans behave.
The Invesco Senior Loan ETF (BKLN +0.10%) is an example of an advanced bond exchange-traded fund (ETF) with meaningful benefits compared to the usual aggregate bond funds most investors start with.
