BKLN ETF

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.

Rates are likely to remain at the higher levels. High-yield ETFs should fare better in the near term.

In mid-February 2025, some in the media will be excitedly discussing what stocks were bought or sold by hedge funds in Q4 2024. However, thanks to the Unlimited Hedge Fund Barometer, we can understand today that long/short equity managers were avoiding more cheaply valued small- and midcap stocks in favor of growth stocks.

There are many opportunities in fixed income in the current environment, with bank loans looking uniquely attractive. Bond yields are currently sitting at relatively high levels, which makes bonds look attractive in the current environment despite tight spreads.

The Federal Open Market Committee closed 2024 with its third consecutive reduction to the overnight borrowing rate, while Chair Jerome Powell suggested the pace of rate cuts is likely to slow in the coming year or more. Though the Fed lowered rates multiple times in recent months amid strong economic growth and easing inflation, there is broad uncertainty about how these two metrics will shift into the new year.

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.