Investors See Best of Both Worlds in High-Yield ETFs

February 22nd at 11:25am by John Spence

Investors have pumped about $5 billion into the two largest exchange traded funds for high-yield or “junk” bonds this year. They’re chasing the juicy yields and capital appreciation that high-yield ETFs have enjoyed.

The $13.7 billion iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) has pulled in $2.7 billion of net inflows in 2012, according to research from ConvergEx Group. SPDR Barclays High Yield Bond (NYSEArca: JNK) has seen inflows of $2.2 billion and holds $11.6 billion in assets.

Paltry rates in U.S. Treasuries and an obsession with yield have caused more investors to explore junk bond ETFs. [ETF Spotlight: High-Yield Bonds]

The iShares ETF has a 30-day SEC yield of 6.6%, while SPDR Barclays High Yield Bond offers 6.7%. [Search for Yield Drives Record Fixed-Income ETF Buying]

The junk bond ETFs have seen their price rise in recent months with investors getting comfortable with taking on more risk. Improved corporate balance sheets, low defaults and a hunger for yield have helped fuel the buying in the ETFs.

SPDR Barclays High Yield Bond is up 8.9% over the past three months, according to Morningstar.

“Since late last year, junk bond funds have been nothing if not reliable and predictable. Mutual funds focused on high-yield debt recorded an 11th straight week of net inflows,” in the latest week, Barron’s reports.

“Clearly, while dividend paying equities are growing increasingly popular, junk bond ETFs are too. The segment is attracting considerable inflows and could continue to do so if the Fed keeps rates steady at their current, ultra-low level,” adds Eric Dutram in commentary for Zacks.

Inflows and rising bond prices have pushed assets higher in the junk bond ETFs at a rapid clip.

However the “meteoric rise in shares outstanding since the start of the year” in high-yield ETFs “may finally be taking a breather,” TF Market Advisors notes.

iShares iBoxx High Yield Corporate Bond


The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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