PowerShares Canada cuts fee on senior loan ETF as competition heats up

Sep 11th, 2013 | By | Category: Fixed Income

PowerShares Canada has reduced the management fee on its TSX-listed PowerShares Senior Loan (CAD Hedged) Index ETF (BKL). The move appears to be a direct response to the launch of a competing fund from First Trust.

PowerShares Canada cuts fee on senior loan ETF as competition heats up

PowerShares appears to have cut the fee on its TSX-listed senior loan ETF in direct response to the launch of a competing fund from First Trust.

The fee on the PowerShares fund, which was introduced in April 2012, has been cut by 0.10% to 0.80%.

This makes it marginally cheaper than the recently launched First Trust Senior Loan ETF (CAD-Hedged) (FSL), which debuted on the exchange in August and charges 0.85%.

Both funds provide access to an asset class that has historically delivered higher yield than other fixed-income securities of equal or higher credit quality and offers investors an added measure of security against borrower default.

In addition, the low duration of senior loans may help to reduce a portfolio’s overall interest-rate sensitivity.

The PowerShares fund, which is passively managed, is linked to the S&P/LSTA US Leveraged Loan 100 Index (CAD Hedged). This index reflects the performance of largest facilities in the US leveraged loan market, while hedging movements in the USD/CAD exchange rate. The index mirrors the market-weighted performance of the largest institutional leveraged loans based upon market weightings, spreads, and interest payments. The fund has in excess of C$46 million in assets under management.

The First Trust fund meanwhile is benchmarked to the same S&P/LSTA index but is actively managed. Its objective is to provide a high level of current income by investing in a diversified portfolio of senior floating rate loans and debt securities, with capital appreciation as a secondary objective. The fund, which, like the PowerShares fund, is currency hedged, will primarily invest in loans which are generally rated at or below BB+ by Standard & Poors, or Ba1 or less by Moody’s, or a similar rating by an approved credit rating organisation. The fund has just shy of C$10 million in assets under management.

Commenting on the outlook for senior loans, Michael Cooke, Head of Distribution, PowerShares Canada, said: “For investors concerned about the US Federal Reserve’s latest signals on tapering its bond-buying programme, BKL may provide peace of mind. Historically, senior loans have fared extremely well relative to other fixed-income securities in rising-rate environments, delivering attractive current income, reduced interest-rate sensitivity and the added security of assets backed by collateral.”

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