BKLN ETF

An upbeat job market and moderately cooling inflation may prevent the Fed from opting for significant rate cuts in the near future.

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BKLN is the largest senior loan ETF in the market. Although it has outperformed these past few years, coming rate cuts are a significant headwind. BKLN's 0.65% expense ratio is higher than average, and a significant long-term negative.

The Invesco Senior Loan ETF is a risky but potentially high-reward proposition for investors expecting interest rate cuts but don't want to bet on when they'll start. BKLN primarily contains junk debt, and that's the biggest risk if higher-for-longer goes on indefinitely. This ETF offers a risky but attractive near-9% yield for 'waiting out the Fed', in a manner of speaking. Risk is high, but it's a Buy.

The Federal Reserve continues to hold fast to its highly data-driven, wait-and-see approach on rate policy. Last week's FOMC meeting further bolstered the market's belief in a lone rate-cut scenario, and senior loan ETFs have gained traction as elevated rate expectations spill over into the second half of the year.

The Fed's Neel Kashkari believes that it's likely that the Fed will cut interest rates once in 2024, possibly in December.

As investors consider where to allocate investments, Justin Danfield from Invesco pointed out that bond investing is an appealing choice while markets speculate on when the Federal Reserve will start cutting rates.

Jerome Powell, the Chair of the Federal Reserve, suggested that rate cuts may be postponed based on his recent comments.

The Invesco Senior Loan ETF offers passive exposure to leveraged loans and has provided a solid 9% total return since June, despite increasing defaults and tightening credit spreads. Moving forward, due to the significant difference between credit spreads and real defaults, I anticipate that future returns may not be as strong as anticipated by investors.