Yet the recent fund outflows and options trading in high-yield ETFs suggest some investors are cashing out or at least hedging their bets. [High-Yield Bond ETF Implied Volatility Skyrockets]
Cameron Brandt, director of research at EPFR Global, told InvestmentNews the recent pattern of outflows could represent a combination of factors, including uncertainty surrounding the looming fiscal cliff, year-end portfolio management or tax-planning strategies. But it also could represent a turning point at which investors are starting to see less value in the category as a result of the pace of inflows.
“When investors start to bail out of high yield they tend to do it with a vengeance,” Brandt said in the article. “It has been a banner year for inflows, and what I see is certainly a degree of discomfort among investors with how fast the asset class has been bought.”
Conversely, some analysts see continued strength in junk bonds simply because there are few alternatives for investors searching for yield in a low-rate market.
“Cash is paying you nothing, and equities are very volatile and uncertain,” Gershon Distenfeld, director of high yield at AllianceBernstein, told InvestmentNews.
iShares iBoxx High Yield Corporate Bond
Full disclosure: Tom Lydon’s clients own JNK and HYG.