A high yield exchange traded fund (ETF) from iShares gathered more than half a billion euros in November, the highest selling ETF in Europe last month, indicating investors' preference for the higher-yielding bond market.
The iShares Euro High Yield Corporate Bond UCITS ETF (ticker IHYG) gathered €572 million last month, or 18.33 percent of overall inflows, according to Lipper's most recent report. The fund has returned 0.32 percent over November, but is down over 3 percent so far in December as investors anticipate the US Federal Reserve hiking interest rates.
The third best-selling ETF in Europe last month was in a similar higher-yielding bucket – the Shares Core Euro Corporate Bond UCITS ETF claimed just under €400 million in November.
Flows to Europe-listed high yield contributed to overall net flows in the European ETF segment to €65.9 billion year to date. Total assets now stand at €457.4 billion in November, up from €444.3 billion the previous month.
Separate data from ETFGI released last week show that Europe ETFs gathered $72.6 billion as of the end of November, which is 18 percent more than this time last year.
In the US, high yield ETFs are plummeting to four-year lows, largely due to the weakness in the energy sector. Oil prices have slid below $36 per barrel today for the first time since 2009.
Last month, Jeffrey Gundlach said that unless oil prices were to recover fast, there could be widespread defaults in the energy space as these companies see lower revenues.
And he doesn't see oil prices recovering, citing extremely high inventory levels. Moreover, he says, downgrades in energy company debt from investment grade to junk could push the sector's weighting in the junk bond market to 30 percent.
"Junk bonds are a horrible long-term investment; you end up holding more and more of the worst-quality bonds," Gundlach said. "They should be sold on strength."
Additional reporting by Cinthia Murphy