This Junk Bond ETF Is Skirting Outflows

Junk bond bulls are probably happy to see May come to a close. The fifth month of the year was unkind to high-yield bonds with the group on pace for its monthly loss in a year. The pain, modest for now, is being felt at the fund level.

“High-yield funds in the U.S. reported $875 million of withdrawals this week, the biggest outflow since February,” reports Lisa Abramowicz for Bloomberg, citing Lipper data. A surge in new junk bond issuance and concerns that rising interest rates, which boost yields on less risky U.S. Treasurys, are seen as weighing on high-yield bond funds.

The largest ETFs tracking the asset class have been unable to escape the carnage in May. The iShares iBoxx $ High Yield Corporate Bond Fund (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) are both headed for monthly losses of around 2% and both ETFs have seen significant outflows this month. Through Thursday, investors pulled over $740 million from HYG and more than $765 million from JNK, according to Index Universe data.

In a sign that investors are starting to show a slight preference for active management when it comes to high-yield bonds, the AdvisorShares Peritus High Yield ETF (NYSEArca: HYLD) has avoided the outflows while outperforming HYG and JNK this month. HYLD is on pace for a monthly loss of just half a percent and has attracted almost $23.5 million in new assets this month. Through Thursday, HYLD had nearly $275 million in assets, according to issuer data.

Relative to HYG and JNK, HYLD has toiled in anonymity, but that is starting to change. In mid-April, HYLD had $210.8 million in assets under management and average daily volume of less than 40,000 shares. The volume number has more than doubled to over 81,000 shares per day. [High Yield Bond ETFs That Protect Against Rising Rates]

In another sign that active management with junk bonds can work for investors, HYLD’s duration, or the ETF’s sensitivity to interest rate changes, was 3.2 years as of mid-April, but has since fallen to 2.96 years. By comparison, HYG’s effective duration is almost four years while JNK’s modified adjusted duration is nearly 4.3 years.