Junk debt ETFs tracking bonds with shorter durations are finding a home in more portfolios as investors continue to scratch for yield but fret over the damaging impact of higher interest rates.
For example, PIMCO 0-5 Year High Yield Corporate Bond (NYSEArca: HYS) and SPDR Barclays Short Term High Yield Bond (NYSEArca: SJNK) have seen year-to-date inflows of $1.9 billion and $1.1 billion, respectively, according to IndexUniverse data.
The iShares iBoxx $ High Yield Corporate Bond (NYSEArca: HYG) and SPDR Barclays High Yield Bond (NYSEArca: JNK) are the largest junk bond ETFs, and have longer durations. Investors have pulled $512 million from HYG and $2.5 billion from JNK so far this year. The two ETFs have experienced net inflows for July as their share prices recover after the swoon in May and June. [Amid Rebound, Cash Pours Into Junk Bond ETFs]
“Bond investors are concerned about the high-yield space,” said David Mazza, head of ETF investment strategy at State Street Global Advisors, which manages SJNK and JNK.
“SJNK is ideal exposure for taking on some credit risk and higher yields, while managing interest rate risk,” he said in a recent telephone interview. “SJNK is in the sweet spot.” [Investors Buying High-Yield ETFs with Shorter Durations for Rate Protection]