Slim yields in Treasury bonds and a desire for safety and income have pushed many investors into dividend and high-yield exchange traded funds in 2011. However, both ETF categories have been hit hard in the recent sell-off in another reminder of the risks of stretching for yield.
According to data from the National Stock Exchange, SPDR Barclays High Yield Bond (NYSEArca: JNK) and iShares iBoxx High Yield Corporate Bond ETF (NYSEArca: HYG), which both yield about 8%, were near the top with cash inflows of about $1 billion each in October.
Not far behind, the iShares Dow Jones Select Dividend Index (NYSEArca: DVY) had inflows of almost $800 million during the same period.
“During the ongoing market volatility, we’ve seen a strong demand from clients for investment products which offer a steady cash flow and consistent yields,” said Leslie Gent, global head of research and product solutions at Coutts, in a Financial Times report.
With the lingering Eurozone debt crisis and the recent failure of the “supercommittee” to reach a plan to cut $1.5 trillion in deficits, many securities including high-yield corporate bond and dividend-stock tracking ETFs may be in for greater price declines. [High-Yield ETFs Rolling Over?]
Meanwhile, yields on the 10-year Treasury note have been driven below 2% amid the flight to safety recently.