State Street Global Advisors (SSGA), the Boston, MA based distributor of exchange traded-funds, has combined forces with GSO Capital Partners, the global credit business of private equity behemoth Blackstone, to unveil the world’s first actively managed senior loan ETF – the SPDR Blackstone/GSO Senior Loan ETF (SRLN). If you are looking to invest in a liquid and cost-effective instrument for accessing the senior loan market may find SRLN attractive.
SRLN aims to preserve capital while delivering high current income and outperform both the Markit iBoxx USD Liquid Leveraged Loan Index (“the primary index) and the S&P/LSTA US Leveraged Loan 100 Index (the “secondary index”) by investing at least 80 percent of its assets (and any borrowings for investment purposes) in Senior Loans. For investment purposes, a first lien on senior secured floating rate bank loans is considered a Senior Loan.
Generally, senior loans are secured debts of US and non-US companies. Their rates are normally a few percentage points above LIBOR and are reset every three months, making them relatively stable investments in both rising and falling rate environments. Also below investment grade holdings can offer an attractive combination of higher yields and minimal duration, thus complementing traditional fixed income investments.
Since senior loans are a relatively inefficient asset class, an active management approach allows for strong fundamental credit analysis through which a fund manager is able to acquire loans at attractive prices before they are added to a senior loan index or identify loans before they are removed from an index due to restructuring – thus avoiding or minimizing a credit a loss.
Also, an active manager can make relative value decisions among the loans in the index which can potentially add value. More than 76 percent of total assets are invested in BB- or below rated loans. Sector-wise, healthcare and pharmaceuticals, telecommunications, business and consumer services, oil and gas, and media constitute more than 50 percent of the fund portfolio.
By collaborating with GSO, SRLN offers investors access to institutional credit expertise that has traditionally been the domain of high net-worth individuals, financial institutions and pension funds.
The fund’s expense ratio of 0.9 percent may seem slightly higher than the passively managed existing loan ETFs, but is significantly lower than senior loan mutual funds, which average around 1.45 percent.
The jury is still out on this newcomer since no dividend or price information is available. Time will tell if SRLN has merits, so I will review it once it has established some kind of track record, which will have to be substantial to justify the expense ratio.
Disclosure: No holdings