Investors have pumped billions of dollars into high-yield bond ETFs this year, leading some to speculate this new source of inflows has propped up the junk debt market.
However, high-yield mutual funds and ETFs recorded net outflows of about $2.5 billion for the week ended Wednesday, according to reports.
Now, some are wondering about the potential impact if investors start fleeing high-yield ETFs in droves with the same speed they bought the funds.
According to Thomson Reuters-owned Lipper, the past week saw the fourth-largest outflow from junk bond funds since the data provider’s records began in 1992, Dow Jones Newswires reported.
“Big swings in ETFs and mutual funds have many professional investors worried about the potential disruption to prices of their underlying bonds, because big outflows mean that fund managers need to find bonds to sell to meet redemptions,” the newswire said.
Earlier this week, Vanguard said it was closing the $16.9 billion High-Yield Corporate Fund to most new accounts “in an effort to curtain strong cash inflows.” About $2 billion has moved in the door the past six months, the investment manager said. [Vanguard Closes High-Yield Fund — ETF Alternatives]
In the first quarter, Fitch estimates total retail fund flows into high-yield bonds reached $15 billion, with at least 20% of the total resulting from new flows into junk bond ETFs.
In the past week, however, jitters over Greece and the global economy have investors moving away from high-yield bond funds.
The big weekly redemption “seems to represent a snowball effect from transaction in a single ETF,” Reuters reported.