Friday, January 06, 2006


Sectorz : Ka-Ching in Senior Loan ETFs

About a week back, I analyzed price action in the senior loan sector (also known as floating rate funds) that led me to sniff out a bottom. On reason I have been watching the sector is that most funds in this sector sport dividends in excess of 7 % in . So, if a bottom has been made, there is the prospect of capital gains and huge dividends-in other words a bonanza. Like REITs in 2003 and 2004.

Yeah, I know. You're saying common Kaiser, how does this week's action tell us anything ? This was a good week for almost every stock and asset class with few exceptions. I saw a lot of pigs flying on Friday.

But most of these funds have been up 5 % in about two weeks of trading. Thats something to take note of. And the rally in the senior loan ETFs started in late Dec itself. They seemed to sense the contents of the Fed minutes. This sector loved 2003, the year of reflation. Is 2006 going to be like 2003 ? (I plan to delve deeper into this theme in a later post)

(Above) The 6 month charts of PPR and VVR show them both comfortably breaching the 200 DMA. Run up has been too quick, so pullback maybe in order. RSI is overbought and Money Flows seem to be moderating.

[Disclosure : Long PPR at 6.49]

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