Investors are buying exchange traded funds tracking high-yield bonds at the fastest rate ever, putting more than $5 billion into the ETFs this year.
“Exchange traded funds for speculative-grade bonds are drawing the biggest inflows on record from investors seeking easier access to higher-yielding assets,” Bloomberg reported Thursday.
Inflows to junk bond ETFs have nearly quadrupled in 2012 from the year-ago period. [ETF Spotlight: High-Yield Bonds]
Most of the money has gone into the two largest ETFs in the category: iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) and SPDR Barclays High Yield Bond (NYSEArca: JNK). [Investors See Best of Both Worlds in High-Yield ETFs]
Many investors have moved into dividend ETFs and high-yield funds to boost income in a low-rate environment for bonds. However, by doing so, they are introducing more risk into their portfolios.
“If you hope to gain more income by increasing your allocation to higher-yielding bonds or dividend-paying stocks, you should be aware that your portfolio volatility will likely increase as a result,” says Vanguard Chief Economist Joe Davis. [No Free Lunch: The Risks of Dividend ETFs]
While ETFs represent 2% of the $1 trillion in U.S. corporate speculative-grade debt outstanding, they comprised over a third of the total $14.8 billion of inflows this year to mutual funds and ETFs that invest junk bonds, Bloomberg reported.
“ETFs are giving people a fair degree of comfort, providing them with daily transparency and the ability to see a trade in and out, and asking for relatively low fees,” said Peter Tchir of hedge fund TF Market Advisors, in the article.
iShares iBoxx High Yield Corporate Bond
