The seemingly insatiable demand for high-yield corporate debt has forced Vanguard to close a junk bond mutual fund after investors pumped $2 billion into the fund the past six months.
The firm is closing the $16.9 billion High-Yield Corporate Fund to most new accounts “in an effort to curtain strong cash inflows,” according to a press release Thursday.
“In this prolonged low-rate environment, we continue to see investors turn to high-yielding alternatives— including money market fund holders moving to bond funds, U.S. Treasury bond fund holders moving to high-yield corporate funds, and bond fund holders moving to dividend-paying stock funds. And we’ve cautioned investors accordingly about reaching for yield,” said Vanguard CEO Bill McNabb. “The flows into the High Yield Corporate Fund have been particularly acute.”
ETFs that invest in high-yield corporate bonds include SPDR Barclays Capital High Yield Bond ETF (NYSEArca: JNK), iShares iBoxx High Yield Fund (NYSEArca: HYG), PowerShares High Yield Corporate (NYSEArca: PHB) and PIMCO 0-5 Year High Yield Corporate Bond (NYSEArca: HYS). [Largest Junk Bond ETFs Offer 7% Yields]
Junk bond ETFs have been extremely popular this year. [ETF Spotlight: High-Yield Corporate Bonds]