“This appears to be part of Third Avenue’s problem,” Rosenbluth added.
However, speculative-grade bond ETFs are not exposed to same level of risks.
Junk bond ETFs have also experienced their fair share of liquidity concerns. Observers are concerned that after investors funneled billions into the asset in the low-yield environment, investors may face liquidity challenges when trimming their junk bond ETF exposure.
The iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG), though, does not include the same level of credit risk as the Third Avenue fund. Specifically, the ETF includes a 53% tilt toward BB-rated debt, with just 8% in bonds rated below CCC or lower and only 2% in unrated bonds. Moreover, the HYG ETF itself is very liquid, trading at a record $2 billion in the secondary market this week and showing no primary market redemptions.
“Relative to TFCVX, S&P Capital IQ thinks the bonds inside HYG have greater liquidity,” Rosenbluth said.
For more information on the speculative-grade debt market, visit our junk bonds category.
Max Chen contributed to this article.