Friday, December 30, 2005


Interesting Sectorz for 2006 : Senior Loans

Energy and Metals were definitely the sectors to be invested in, in 2005. Housing was also in play, on both the long and the short side, especially so if you possessed the prescience of Ken Heebner. So what are the plays for 2006 ?

One sector thats crossed my radar screen is the asset class of
senior loans. The yields on these are indexed to short term interest rates, which allow this asset class to benefit in a rising interest rate environment. Participation in this sector is possible through mutual funds and etfs. The ETFs range in size from assets of about a hundred million to about one and a half billion dollars. I like the closed-end senior loan etfs because of their liquidity.

2003 ('the year of reflation') was a great year for senior loan ETFs. PPR a
nd VVR are the largest etfs in this class in terms of both assets and average daily trading volume. Big moves in these securities in either price or volume are less likely to be 'noise'.

If you look at the charts , you will find that almost every single senior loan ETF has been in a sustained downtrend through most of 2005. This has resulted in very high relative yields (7-10%) on these funds. However, in the last four weeks, many of these ETFs have seen positive OBV. The holiday week has been most interesting with several of these funds up on very heavy volume. Thats what caught my attention- above average volume in the last few days of Dec ? Somethings going on. (Only an opinion-never intended as advice).

Charts courtesy of, and optionsxpress,Inc.

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