High-yield, speculative-grade bond exchange traded funds are attracting billions of dollars as market volatility dissipates and investors look to capitalize on cheaper valuations in riskier assets after the recent sell-off.
Investors funneled $2 billion into funds in high-yield and high-yield municipal debt peer groups over February, Todd Rosenbluth, S&P Global Market Intelligence Director of ETF & Mutual Fund Research, wrote in a note.
According to EPFR, high-yield bond funds saw the largest four weeks of inflows since 2012, the Financial Times reports.
“This is a one in every four or five years buying opportunity,” Mark Kiesel, chief investment office for global credit at PIMCO, told the Financial Times, pointing out that in the sell-off, credit spreads had become too wide relative to the health of the underlying companies. “Credit is offering equity returns with half the volatility.”
The S&P U.S. Issued High Yield Corporate Bond Index returned 0.5% in February after hitting a nadir mid-month and rallying 3.7% in the last two weeks.
Matthew Fuller, a director at S&P Global Market Intelligence Leveraged Commentary & Data, argued that a rally in high-yield debt was supported by healthier economic news, strong inflows to the investment style and a dearth of new issuance.
[related_stories]Looking at junk bond ETF flows so far this month, the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) attracted $1.5 billion in net inflows and iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) brought in $814.7 million in inflows, according to ETF.com. JNK has a 4.20 year duration and a 7.14% 30-day SEC yield. HYG has a 3.95 year duration and a 7.07% 30-day SEC yield.
The speculative-grade bond ETFs experienced greater attention as riskier debt securities rallied. Over the past month, HYG rose 6.9% and JNK increased 7.5%.
High-yield municipal bond ETFs, including the Market Vectors High Yield Municipal Index ETF (NYSEArca: HYD) and SPDR Nuveen S&P High Yield Municipal Bond ETF (NYSEArca: HYMB), were relatively flat for the month. Nevertheless, HYD still saw $62.0 million in inflows and HYMB added $5.7 million so far this month. HYD has a 9.67 year duration and a 4.27% 30-day SEC yield. HYMB has a 7.83 year duration and a 3.98% 30-day SEC yield.