Exchange traded funds indexed to high-yield corporate bonds have garnered significant interest from an asset inflows standpoint thus far in 2012, and one fund in particular stands out as the recipient of much of these flows, iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG).
In the past week alone, approximately $800 million has flowed into HYG via creation activity which is notable considering the fund’s total float is about $13 billion. In our daily recaps that we send out to trading clients we have also pointed out call buying in HYG options that occurred on Monday of this week, and continued yesterday in large size relative to what typically trades in HYG options, so it seems clear to us that portfolio managers are taking a “risk on” approach to fixed income investing in 2012 given that U.S. Treasury bonds are still delivering very unappealing yields. [High-Yield ETFs Rally]
HYG’s current 30-day SEC yield is 6.83% and the top holdings are speculative or “junk bond” rated issues from companies such as First Data, Sprint Nextel, CIT Group, Calpine and Intelsat. Given the capital markets activity that we are observing in HYG, it makes sense for portfolio managers to pay attention to the entire space and thus monitor competitors of HYG for trading and investment opportunities as well.
Funds such as SPDR High Yield Bond (NYSEArca: JNK), PowerShares High Yield Corporate Bond (NYSEArca: PHB), PIMCO 0-5 Year U.S. High Yield Corporate Bond (NYSEArca: HYS) and Peritus High Yield (NYSEArca: HYLD) stand out as possibilities for those looking for exposure to the high yield bond space via an ETF in this environment.
Additionally, for those looking to leverage their upside potential in the space, ProShares Ultra High Yield ETF (NYSEArca: UJB) tracks the same index as HYG but with two times leverage.
From a performance standpoint, in the trailing one year period, PHB has performed the best out of this group, up 0.49% followed by HYG down 1.12%, and HYS lost 1.44%. JNK has fallen 2.52% during this time frame while HYLD has lost 5.79%.
iShares iBoxx High Yield Corporate Bond