Senior loans and the related ETFs that invest in these can meet the storms created by rising interest rates while maintaining a fixed income profile. There are some liquidity problems that go along with this corner of the bond market. This time we are looking at a A loan fund with a focus on liquidity that can offer a solution to that problem.
Senior secured loans
It is with low interest rates are seen as a way for interest investors to maintain yield generation while hedging the exchange rate risk. Senior secured interest-bearing loans have, as the name implies, a variable interest rate component that fluctuates with market rates. Since interest rates are typically restored once a quarter, older loans usually have low maturities. Since the higher loans have interest rates that are adjusted regularly, the floating interest rates also offer investors an alternative way of earning a return while mitigating the interest rate risk.
A senior loan is a private loan that a company takes from a bank or a syndicate of lenders. The loans are also secured by being backed by the borrowers’ assets, which act as collateral. If the borrower defaults, the lenders have a higher claim on the defaulters’ assets.
SNLN has 100 of the largest and most liquid senior loans
Loans that are eligible for inclusion in the fund are “measured by the number of active market participants who deal in collateral and the dollar liability amount for outstanding senior loans issued,” according to the issuer. “Loans that are eligible for inclusion in the underlying index are measured by type, size, liquidity, spread, credit rating and minimum maturity.”
SNLN has a maturity of 6.04% and an average day to recovery of 30.1 days. The fund’s weighted average coupon rate is 4.93%.
While senior loans are classified under investment grade, the standard interest rates on senior loans have historically been somewhat lower than for high yield or scrap bonds. Furthermore, investors are more likely to recover losses, which can make the asset class less risky than high-yielding, speculative bonds. SNLN’s 30-day SEC return is 5.92%.