Invesco PowerShares, the Wheaton, Ill.-based exchange-traded fund firm best known for its PowerShares QQQ ETF (Nasdaq: QQQQ) of Nasdaq’s 100-biggest companies, filed new paperwork with U.S. regulators, renaming its planned bank-loan ETF and revealing the fund’s ticker and cost.
The PowerShares Senior Loan Portfolio, previously named PowerShares S&P Bank Loan Portfolio, will be listed on the New York Stock Exchange’s electronic platform, Arca, under the ticker “BKLN” and have an annual expense ratio of 0.83 percent, according to the filing, which updates paperwork the company filed in November.
BKLN will invest primarily in “senior loans,” defined in the filing as leveraged, bank or floating rate loans. A small portion of the portfolio might also be allocated to closed-end funds that invest in senior loans and in junk bonds. While the portfolio is global in scope, all loans must be dollar-denominated, according to the filing.
The fund will employ a representative-sampling to track the S&P/LSTA U.S. Leveraged Loan 100 Index. The benchmark measures the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads and interest payments.
The rules-based index, which has 100 loans, is a subset of a larger benchmark, the S&P/LSTA Leveraged Loan Index, which comprises more than 1,000 loans, the filing said. Leveraged loans are rated below investment-grade quality or are unrated. Their speculative nature usually means they are often more volatile than higher-quality loans and are less liquid in the secondary market.
While the fund will generally secure collateral, investors are advised to keep in mind that investing in below-grade-investment-grade bank loans involves credit risk as well as interest rate fluctuations risk, according to the filing.
Some of the criteria required for a loan to be eligible for the mix include the loan having a minimum initial term of a year, being dollar-denominated and having a minimum initial spread of 125 basis points over Libor (the London interbank borrowing rate).
Powershares said in the filing the index will be rebalanced semiannually.