Income-minded investors are increasingly turning to corporate credit and bond ETFs to generate more attractive yields in a stubbornly low yield environment.
Despite the record highs that U.S. equities are continuing to hit, fund investors have yanked more money out of stocks, funneling assets back into bond funds, reports Trevor Hunnicutt for Reuters.
U.S. based bond funds have attracted over $2 for every $1 gathered by equity funds this year, according to Thomson Reuters’ Lipper research. According to the Investment Company Institute data, bond funds saw $6.7 billion in inflows over the past week, adding a 40th straight week to their inflow streak.
Fueling the increased demand for debt assets, tumbling yields on safer government and corporate debt pushed investors towar riskier and higher yielding debt, like junk bonds. Furthermore, U.S. corporate bonds are enjoying a stronger tailwind in an environment of strong economic growth, healthy earnings and dropping default rates.
“With solid macro momentum in the third quarter, strong earnings guidance and without aggressive Fed hikes causing an abrupt end to the current expansion, we continue to favour high-yield corporates that are cyclically attractive,” JPMorgan strategist Lixin Bao said, the Financial Times reported.
Among the most popular ETF trades over the past week, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) has seen $626.7 million in net inflows while the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYESArca: LQD) added $580.6 million, according to XTF data. HYG comes with a 4.58% 30-day SEC yield and LQD shows a 3.20% 30-day SEC yield.
Investors interested in other high-yielding corporate debt exposures can also look to various ETF options, including the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK), which has a 4.98% 30-day SEC yield; Deutsche X-trackers USD High Yield Corporate Bond ETF (HYLB); AdvisorShares Peritus High Yield ETF (NYSEArca: HYLD), which has a 7.23% 30-day SEC yield; and the VanEck Fallen Angel High Yield Bond ETF (NYSEArca: ANGL), which has a 4.85% 30-day SEC yield.
For more information on the credit market, visit our bond ETFs category.