Invesco Senior Loan ETF

BKLN

Market cap $6.74B

BKLN offers a high 7.55% yield and strong diversification but invests mainly in below-investment-grade, short- to medium-term leveraged loans. Rising default risks, lower interest rates, and increased competition in the leveraged loan market could pressure yields and impact future distributions. A potential Fed rate cut in September 2025 may lower yields on new loans, reducing BKLN's income potential going forward.

The bond market looks increasingly focused on slowing economic growth vs. tariff inflation.

With the market roughly at the midpoint for 2025, investors and advisors are still assessing how changing macroeconomic conditions could affect their fixed income portfolio. This topic was discussed at length during the VettaFi Midyear Market Outlook Symposium, which brought together experts and portfolio managers to discuss a wide variety of investment approaches.

BKLN remains a Hold as I anticipate imminent Fed rate cuts, which will likely reduce future income from floating-rate loans. Distributions have declined in line with expectations, reflecting the impact of 2024's rate cuts and portfolio turnover, though recent payments have rebounded slightly. The portfolio's credit quality is stable, but maturities have shifted longer, and most holdings yield in the mid-to-upper single digits.

In recent days, a new headwind is weighing on fixed income securities: a US government budget bill, which is expected to significantly raise an already hefty federal deficit in the years ahead. Long-term Treasuries are the biggest losers post-Liberation Day, based on a set of ETFs through yesterday's close (May 21).

Rising tariff turmoil has sparked a run from credit-sensitive instruments, with escalating trade tensions threatening economic stability. Wednesday's GDP print stoked recessionary fears when it showed the U.S. economy contracted for the first time since early 2022.

It's been another strong year for ETF demand. ETFs gathered approximately $350 billion of new money year-to-date through April 16.

On this week's episode of ETF Prime, host Nate Geraci and VettaFi Investment Strategist Cinthia Murphy analyze ETF flows and trends after a wild week in the markets. Later, Geraci welcomes VistaShares CEO Adam Patti to discuss the firm's unique approach to ETFs.

Leveraged loans offer high yield, short duration, and better risk-adjusted returns compared to junk bonds, making them attractive in today's volatile interest rate environment. BKLN provides exposure to leveraged loans, with a 7.00% yield, 0.10-year duration, and a B+ average credit rating. Given current economic uncertainties, an overweight position in leveraged loans is warranted for better risk/reward, despite credit risks.

Morgan Stanley, Barclays and Macquarie expect only one Fed rate cut this year while Goldman Sachs and Wells Fargo expect two, indicating higher rate environment this year.