What criteria's are to be followed for selecting the benchmark index for PowerShares Bank Loan ETF?
There are several criteria, we are listing the primary ones here:
- loan must have a minimum initial term of atleast a year
- the loan should be dollar-denominated
- the loan should have a minimum initial spread of 125 basis points or 1.25% over LIBOR (London interbank borrowing rate)
Investors should note that bank loans are prone to defaults, so even though ETF's are considered to be the safe kind of investments, there is no guarantee that your money will be protected.
Please remember that bank loans are also prone to default. There is a big counterparty risk, there is a big interest rate fluctuation risk and there is a big credit risk. When big companies like Lehman Brother can collapse, there can be subprime mortgage crisis leading to a global recession, nothing can be said with certainity about the returns from a product.
Investors should be aware of such risk parameters.
What is the frequency of rebalancing of the index?
The index is learnt to be rebalanced every six months.
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