Time to Short BKLN? Brean Capital's Peter Tchir has a bunch of reasons why shorting the senior loan ETF now makes sense. By Amey Stone Aug. 18, 2017 4:36 p.m. ET Peter Tchir, Brean Capital’s macro income strategist, has an idea for investors looking for a ways to hedge credit risk: Short the popuar exchange traded fund PowerShares Senior Loan ETF (BKLN). There are lots of reasons this makes sense. Some are fundamental. BKLN, which owns leveraged loans, also known as bank loans, hasn’t slid in price, while high yield funds have. That may mean it's due. Also, BKLN yields 3.3% vs 4.8% for iShares iBoxx $ High Yield Corp Bond ETF (HYG), which means some investors might reallocate to high yield away from loans. Finally, investors have less reason to gravitate to floating rate loans now that the Fed seems unlikely to raise rates again this year. The minutes from the late July meeting, released on Wednesday, convinced investors the next rate hike may not happen until 2018. Tchir writes: With concerns hitting the high yield market, the probability of more rate hikes diminishing by the day, it makes sense to see retail pull back from the product – and I think we are just beginning to see that. Tchir also points to some structural reasons to short BKLN. He writes: I only care about the redemption element, but unlike HYG and JNK which work with ‘like for like’ create/redeem, BKLN only does cash create/redeem (leveraged loans aren’t as fungible as bonds). I think in times of stress, having the arbitrage community at work helps define prices well for the ETF and underlying asset class. That doesn’t exist here. The ETF manager will be busy selling bonds to meet redemptions – time consuming and hard to execute in a fast moving market. He adds: I think structurally BKLN is inferior in times of stress – which is exactly what you need in a hedge and it seems more like a crowded long than a crowded short. http://www.barrons.com/articles/time-to-short-bkln-1503088587