The Federal Reserve’s decision to backstop high yield exchange-traded funds (ETFs) as part of its stimulus measures to help boost the bond market amid the pandemic saw bears flee the scene like Yogi Bear spotting Ranger Smith.
Per a recent Bloomberg report, the bearish pressure “on exchange-traded funds that track high-yield bonds plunged as the Federal Reserve stepped into the market. Short interest as a percentage of shares outstanding on the $12 billion SPDR Bloomberg Barclays High Yield Bond ETF, ticker JNK, sank below 2% — a four-year low — after surging to as high as 25% in early March, according to data from IHS Markit Ltd. For the $25 billion iShares iBoxx High Yield Corporate Bond ETF, ticker HYG, bearish wagers are at the lowest level this year.
Short interest on JNK falls to the lowest level in four years.
“After the Fed pledged to shore up credit markets in March, investors have rushed into front-run the move, with the announcement alone causing enough demand to restore order,” the report noted further. “The central bank’s backstop is giving investors confidence to step into the market despite growing social unrest, uncertainty about coronavirus spread, and increased tension between the U.S. and China.”
“We are seeing investors get long high yield as the market continues to recover,” said Mohit Bajaj, director of ETFs for WallachBeth Capital.
In May, HYG saw the best month of inflows in its history, with $4.3 billion added, and its assets ballooned to a record. JNK took in $994 million — its third straight month of inflows. Both have risen more than 21% from their March 23 lows.
Investors looking to add high yield bond exposure to their ETF portfolios can look at the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Bloomberg Barclays High Yield Bond ETF (JNK). Some market experts question whether this move is nothing more than a small bandage on a gunshot wound.
Investors contemplating a high yield option can take a look at the Goldman Sachs Access High Yield Corporate Bond ETF (GHYB). GHYB seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the FTSE Goldman Sachs High Yield Corporate Bond Index.
Investors wanting an active option can look at the PGIM Active High Yield Bond ETF (PHYL). PHYL seeks total return, through a combination of current income and capital appreciation.
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