What’s Scaring Off High Yield ETF Investors? | ETF Trends

Halloween is just over a month away, but fixed income investors are already getting spooked by high yield ETFs. With Covid-19 and a forthcoming presidential election feeding into uncertainty, will a high yield scare continue through the rest of 2020?

“The exodus from high-yield debt shows few signs of easing, with investors pulling hundreds of millions of dollars more from the largest exchange-traded funds that buy junk bonds as a global index tracking the securities erases its 2020 gains,” a Financial Advisor article said. “The Bloomberg Barclays Global High Yield Index flipped to an annual loss this week after just seven weeks in the green, as credit joins the pandemic-spurred gloom in stock markets.”

“When market sentiment turns, outflows from the riskier segments of the market are to be expected, especially following the inflows into credit markets that have taken place since the Fed’s corporate facility announcement,” said Mohammed Kazmi, a portfolio manager at Union Bancaire Privee.

As far as whether this will continue, Kazmi mentioned that Q4 “is set to have a number of key risks which could see volatility return.”

Even while there’s been a flux of investors heading for the exits, high yield can still offer investors better income options than say safe haven government debt. As such, investors just need to be more diligent in choosing their high yield investments

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). These funds allow investors to get high yield bond exposure without actually purchasing the debt itself.


^MSACWIHDY data by YCharts

An Active, Investment-Grade ETF Option

Additionally, for peace of mind, fixed income investors can also opt to go for active funds. By putting high yield investment options in the hands of professionals and with the ability to adjust on the fly, active funds are an option.

One fund to look at is the Principal Investment Grade Corporate Active ETF (IG). IG seeks to provide current income and, as a secondary objective, capital appreciation.

Additionally, the fund is an actively managed ETF that seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets, plus any borrowings for investment purposes, in investment grade corporate bonds and other fixed income securities at the time of purchase. “Investment grade” securities are rated BBB- or higher by S&P Global Ratings (“S&P Global”) or Baa3 or higher by Moody’s Investors Service, Inc. (“Moody’s”) or, if unrated, of comparable quality in the opinion of those selecting such investments.

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