High Yield Fixed Income Assets including Invesco Senior Loan AND F (BKLN ), are not always the first corner of the bond market that retirees flock to, but with yields on Treasuries and municipal bonds near all-low levels, small doses of BKLN in retirement portfolios could boost income profiles.
BKLN does sport 30 days SECOND 2.77% yield – tempting by today’s standards. The Invesco fund tracks the S & P /LSTA US Leveraged Lending Index 100. This gauge “is designed to track the market-weighted performance of the largest institutional leveraged loans based on market weights, spreads and interest payments”, according to Invesco.
A sign that investors are embracing bank loans as a source of return, BKLN’s monthly inflows are approaching $ 306 million. So far this year, investors have added $ 1.8 billion to the fund, a significant percentage of its $ 6.61 billion in assets under management. These flows are part of a context of rising leveraged loan issuance.
“Leverage loan issuance at the end of June 2021 reached US $ 763.5 billion, up 60% from US $ 478.1 billion during the same period in 2020,” JD Supra reports. âInstitutional loans, that is, the parts (tranches) of a loan that are structured / sold to non-banks, such as funds, pensions and insurance companies, have seen an increase even stronger. Issuance increased from US $ 288.7 billion in 2020 to US $ 520.4 billion year-on-year, supported by investor demand. “
BKLN uses sampling methodology, which means it does not contain all of the components found in the S&P /LSTA US Leveraged Lending Index 100. On the contrary, the Invesco fund houses 144 issues.
Sectors from which significant portions of BKLN’s issuance originate include communications services, consumer discretionary and technology. Interesting for investors who are considering BKLN is the fact that many leveraged loan issuers take advantage of low interest rates. While this can depress returns, it also lowers the costs of financing issuers.
âRefinancing and re-pricing agreements in the US loan markets reached $ 471.7 billion at the end of June 2021 and accounted for 62% of all loan issuance during that period. Refinancing and re-pricing grew even faster in the institutional lending market, up 92% over the same period in 2020, reaching $ 329.7 billion and representing 63% of total institutional issues â, according to JD Supra.
Other positive points for BKLN include the low default rates on high yield bonds this year and credit quality that is not too risky. 92% of BKLN’s holdings are rated BBB, BB or B on the S&P scale.