State Street Global Advisors (SSgA) has collaborated with GSO Capital Partners, the global credit business of private equity giant Blackstone, to roll out the world’s first actively managed senior loan exchange-traded fund (ETF).
SSgA has collaborated with Blackstone’s credit division, GSO, to launch an actively managed senior loan ETF.
Listed on the NYSE Arca, the SPDR Blackstone / GSO Senior Loan ETF (SRLN) seeks to deliver high current income, preserve capital, and outperform both the Markit iBoxx USD Liquid Leveraged Loan and S&P/LSTA US Leveraged Loan 100 indices.
By tapping the services of GSO, the fund provides investors with access to institutional credit expertise that has historically been the preserve of high-net-worth individuals, pension funds and institutions.
James Ross, senior managing director and global head of SPDR ETFs at SSgA, said: “Given the high turnover of senior loans and the critical importance of credit selection, we believe an active strategy provides a key advantage to investors who want access to this corner of the market. Blackstone / GSO’s rigorous approach and disciplined credit analysis made them an obvious choice to help us bring this product to clients and we are excited about the partnership.”
He added: “The SPDR Blackstone / GSO Senior Loan ETF is the latest example of our commitment to developing ETFs that democratise access to institutional asset classes, strategies and expertise.”
Lee Shaiman, managing director at Blackstone, said: “SSgA is a pioneer in the ETF market and we are pleased to join them in bringing the first actively managed senior loan ETF to investors. Together we bring significant expertise to the asset class in a transparent and accessible product for all investors.”
With an expense ratio of 0.90%, the fee level is slightly higher than existing loan ETFs such as the Highland iBoxx Senior Loan ETF (SNLN) and PowerShares Senior Loan Portfolio ETF (BKLN), which charge 0.55% and 0.66% respectively. However, the annual fee is significantly lower than the average expense ratio of senior loan mutual funds, which average around 1.45% (depending on share class). Plus, approximately 30% to 35% of loans fall out of loan market indices each year, so the ability to anticipate and react quickly to changes in the market through an active strategy is potentially advantageous.
Senior loans are a relatively inefficient asset class. Therefore, an active management approach allows for strong fundamental credit analysis through which a manager may be able to acquire loans at attractive prices before they are added to indices, as well as identifying loans that are likely to be removed from these indices due to restructuring and pre-emptively selling them to avoid or minimise a credit loss. In addition, an active manager can also make relative value decisions among loans in the index which can potentially add value.
The ETF has been launched with an initial $65 million in assets. Major holdings currently include loans issued by Chrysler, Alcatel Lucent, AES Corporation, Reynolds Consumer Products and Calpine Corporation.