Short Duration Junk Bond ETFs in the Limelight

Amid speculation the Federal Reserve is inching closer to raising interest rates, investors are fleeing some longer duration high-yield bond exchange traded funds in favor of junk ETFs with less sensitivity to rising rates.

Junk bonds, “traditionally favored during a period of rising interest rates, are seen more susceptible this time with the premium paid to hold on to them over government debt at a seven-year low,” reports Sridhar Natarajan for Bloomberg.

With an effective duration of 3.95 years, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG), has lost over $2.1 billion in assets this year, the most among bond ETFs. HYG is still the largest high-yield bond ETF with $13.1 billion in assets under management. [Bond ETFs for Rising Rates]

It is not hard to track where some of the money that is departing HYG and comparable funds is going. Year-to-date, the PIMCO 0-5 Year High Yield Corporate Bond (NYSEArca: HYS) has pulled more than $1.2 billion while the SPDR Barclays Short Term High Yield Bond ETF (NYSEArca: SJNK) has raked in over $1 billion.

SJNK is the shorter duration cousin of the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK), which has lost almost $444 million. [ETF Second Acts Worth Viewing]

HYS, which has a 30-day SEC yield of 2.91%, has an effective duration of just 1.96 years, according to PIMCO data. SJNK is just over two years old and already has nearly $4.1 billion in AUM. The ETF has a modified adjusted duration of 2.19 years.