Pyxis Capital, the mutual fund arm of Dallas-based money management firm Highland Capital, today is launching its first ETF, a fund that would serve up access to senior loans in a strategy that would go head-to-head against a popular product from PowerShares.
The Pyxis/iBoxx Senior Loan ETF (NYSEArca: SNLN) was originally scheduled to launch Tuesday, Oct. 30, but due to the U.S. stock market storm-related shutdown Monday and Tuesday of last week, the firm launch rescheduled the rollout for Nov. 7.
The fund will track the Markit iBoxx USD Liquid Leveraged Loan Index and invest primarily in below-investment-grade senior loans to domestic and foreign corporations and partnerships, the company said in a recent regulatory filing. The ETF has an annual expense ratio of 0.55 percent, according to that paperwork.
It appears that SNLN is the same fund Pyxis originally registered under the name Pyxis/iBoxx Liquid Loan ETF back in July. That ETF that was to be linked to the same index, but listed on the Nasdaq under the ticker LQLN.
Senior loans generally have risk profiles that are similar to below-investment-grade securities, but what sets them apart is that they have a right to payment before most other debts a borrower has. That means senior loans have higher recovery rates than other below-investment-grade debt should a company default on debts.
They are also less sensitive to interest rate risk than other high-yield debt because their yields are adjusted for changes in short-term rates. That lowers their correlations to other fixed-income instruments. In the end, a senior loan portfolio allows investors to tap into relatively stable pockets of the capital markets.
SNLN would face the $1.3 billion PowerShares Senior Loan Portfolio (NYSEArca: BKLN), the first ETF to serve up direct access to senior loans. That fund was launched in March 2011, and costs 0.76 percent, a price that includes 11 basis points in acquired fund fees.
As noted, SNLN marks Pyxis’ initial foray into the ETF market. The firm, which spun off from Highland at the start of the year, offers some 20 open-end mutual funds and traditional closed-end funds, but no ETFs as of now.
If CalPERS is taking hedgies out, ETFs may be coming back in.
‘Smart beta’ almost surely means loss of more market share for active managers.
Be careful of your assumptions (and headlines!) about volatility ETFs.
WBIG hedges in some areas and bets big in others.