One of this week’s hot topics, and rightfully so, is where high-yield bond exchange traded funds go from here.
Investors are pulling out of once beloved junk bond ETFs, such as the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK), and doing so at a rapid pace, heightening fears about what could happen if everyone heads for the same, small exit at the same time. [Volatility Weighs on Junk Bond ETFs]
Those tensions are providing a lift for the oft-overlooked ProShares Short High Yield ETF (NYSEArca: SJB), an inverse but not leveraged play on the Markit iBoxx $ Liquid High Yield Index. Last week, investors pulled nearly $835 million from HYG and $274.3 million from JNK. HYG, the largest high-yield bond ETF, has lost $3.5 billion year-to-date. Only the SPDR S&P 500 ETF (NYSEArca: SPY), which has recently solid inflows, has lost more assets this year than HYG. [S&P 500 ETFs Gain Cash]
Last month, HYG and JNK lost over $2.2 billion combined, exacerbating concerns about the fast and furious departure from junk bond funds.
“There’s been quite a bit of jitters of late thanks to huge, sudden outflows from the funds that play there. This week there will be more people watching junk than during the series finale of Sanford & Son back in ’77,” notes Josh Brown on The Reformed Broker.
SJB is not the largest inverse on the market. It is not even the first destination many traders seek when looking to short junk bonds via ETFs. That honor usually goes to JNK because it is somewhat loose to its underlying index.
However, that does not change the fact that SJB pulled in almost $21 million last month. That may not sound like much, but it is an undeniably impressive haul when considering the ETF finished the second quarter with $41.45 million in assets under management, according to ProShares data.
Said another way, the latest batch of fears surrounding junk bond ETFs has helped SJB grow by nearly 50% in just a month. SJB is up 2.6% over the past month and it appears more traders are waking up to the ETF’s utility. With just under three and a half hours left in Monday’s session, SJB is approaching double its average daily turnover.
ProShares Short High Yield
Tom Lydon’s clients own shares of JNK and HYG.