PowerShares plans leveraged loan ETF

Invesco PowerShares is set to launch its Senior Loan Portfolio ETF on the NYSE Arca this Thursday.

The provider says its ETF is the first to offer access to senior loans - also called leveraged, syndicated, bank or floating rate - a type of corporate debt often used to finance buyouts, mergers and acquisitions as well as stock repurchasing.

Senior loans are prioritised before the claims of other creditors and are repaid first, as well as typically being collateralised by specific assets such as property. Invesco PowerShares says this superior level of security gives senior loans a higher rate of recovery in the event of default.

Another benefit of these bonds is their historically low correlation to other fixed income investments, offering an opportunity for portfolio diversification

Invesco PowerShares managing director of global ETFs Ben Fulton adds: "As a result of shorter maturities and a floating interest rate feature that typically resets quarterly, senior secured loans have the ability to keep pace with rate changes and have historically proven to be more stable than high yield fixed income investments."

The Senior Loan Portfolio tracks the S&P/LSTA US Leveraged Loan 100 index, a market cap-weighted measure of the largest institutional loans within the syndicated leveraged loan universe.

The ETF is expected to issue monthly dividends. Fulton says: "Senior loans can provide an attractive income stream for yield-minded advisors and investors interested in shortening portfolio duration."