Pyxis Capital, the fund investment advisory spun-off from Highland Capital Management earlier this year, made its initial foray into the ETF arena with its November 7 launch (press release) of the Pyxis/iBoxx Senior Loan ETF (SNLN). The underlying Markit iBoxx USD Liquid Leveraged Loan Index is comprised of 100 of the most liquid, tradable leveraged loans, as identified by Markit’s Loans Liquidity service.
According to the SNLN overview, the fund has an expense ratio of 0.55%. I could not find any information regarding yield, days to reset, volatility, performance, or other characteristics for either the fund or the underlying index. The fund’s holdings are identified by issuer name and allocation only (no yield or maturity information).
Analysis/Opinion: For the uninitiated, “Senior Loans” are securities rated below investment grade. They are sometimes called syndicated or leveraged loans and have a floating (variable) interest rate. However, the casual visitor to the fund and index websites will not be made aware of these facts when reading the objectives, descriptions, philosophy, or investor suitability. Only when diving into the small print will potential investors learn that:
- Leveraged Loans are loans to companies that typically already have a high amount of debt and are often characterized by lower credit ratings or higher interest rates.
- The Fund may invest all or substantially all of its assets in Senior Loans or other securities that are rated below investment grade.
- Securities rated below investment grade are commonly referred to as “high yield securities” or “junk securities.”
Another item investors should be aware of is that unlike most ETFs, SNLN will perform share creations and redemptions principally for cash, rather than through in-kind exchanges. As a result, an investment in SNLN may be less tax efficient and have higher tracking error than investments in conventional ETFs.
The new ETF from Pyxis faces competition from PowerShares Senior Loan Portfolio (BKLN), which was the first Senior Loan ETF. Launched in March 2011, BKLN is currently yielding about 4.8% with a total expense ratio of 0.76%. The fund experienced an 8% decline during a six-month stretch in 2011, a time frame when iShares Core U.S. Bond (AGG) gained 6.8%.
New entrants into the ETF industry have been struggling to succeed. Having 17 funds, Pyxis is no stranger to the mutual fund marketplace. However, mutual fund success does not automatically translate to ETF success, with Old Mutual GlobalShares being just one example.