Investor Uses High-Yield ETF for Camouflage
May 15th, 2012 at 1:50pm by John Spence
A large investor tapped an ETF tracking high-yield corporate debt to conceal his trades and acquire about $780 million of bonds, according to a report.
The unnamed investor last Thursday exchanged nearly 20 million shares of SPDR Barclays Capital High Yield Bond ETF (NYSEArca: JNK) for $779.3 million in bonds held by the fund, Bloomberg News reported.
“The redemption, the biggest in the four-year history of the $11.4 billion fund, came after the investor had accumulated shares over several weeks, according to Knight Capital Group Inc., which brokered the trade,” the story said. “The investment in the fund, which tracks the Barclays Capital High Yield Very Liquid Bond Index, may mark a new way for investors to gain control over a large group of bonds without tipping off other investors.”
ETFtrends reported on the volume spike in JNK on May 10. [High-Yield Bond ETF Volume Surges]
“He used the ETF to get his exposure initially; he figured it was an easier way to maintain his anonymity,” said Eric Lichtenstein, global head of ETF trading at Knight Capital, in the Bloomberg article. “It was a unique approach. This was his plan going into it.”
Junk bond ETFs have seen big inflows the past year with investors taking on more risk to boost yield. [Junk Bond ETFs Aren’t Sounding the Alarm Yet]
SPDR Barclays Capital High Yield Bond ETF
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.