Pyxis Plans Senior Loan ETF
July 03, 2012
Pyxis Funds, the rebranded Dallas-based money management firm formerly known as Highland Funds Asset Management, filed paperwork with U.S. regulators to market a bond fund that would serve up access to senior loans in a strategy that would go head-to-head against a popular PowerShares fund, among others.
The Pyxis/iBoxx Liquid Loan ETF (NasdaqGM: LQLN), the company’s first ETF, will track the performance of the Markit iBoxx Liquid Leveraged Loan Index, and invest primarily in below-investment-grade senior loans to domestic and foreign corporations and partnerships, the company said in the filing.
Senior loans generally have risk profiles that are similar to below-investment-grade securities, but what sets them apart is that they have a right to payment before most other debts a borrower has. That means senior loans have higher recovery rates than other below-investment-grade debt, should a company default on debts.
They are also less sensitive to interest rate risk than other high-yield debt because their yields are adjusted for changes in short-term rates. That lowers their correlations to other fixed-income instruments. In the end, a senior loan portfolio allows investors to tap into relatively stable pockets of the capital markets.
LQLN would face the PowerShares Senior Loan Portfolio (NYSEArca: BKLN), the first ETF to serve up direct access to senior loans. Since BKLN came to market in March 2011, the fund has gathered some $582.7 million in assets, according to data compiled by IndexUniverse.
As noted, LQLN marks Pyxis initial foray into the ETF market. The firm, which spun off from Highland at the start of the year, offers some 20 open-end mutual funds and traditional closed-end funds, but no ETFs as of now.
Pyxis has also requested exemptive relief from U.S. regulators to market actively managed ETFs in a filing submitted this spring.
LQLN will own primarily senior loans that are secured by specific borrower assets, but it may also include loans that have no collateral protection in the mix, the company said in the filing.
The company didn’t say how much the proposed fund’s annual expense would be.