Who Actually Owns HYG
Relative to the size of the high-yield bond market, HYG represents only about 2% market share despite it being a $19 billion fund. That may seem small, but investor adoption of this strategy—and others like it—is on the rise as more and more people learn how to use ETFs for long exposure, hedging or for tactical reasons.
Today about 50% of HYG assets are retail money, according to iShares data, and the other 50% includes the likes of asset managers, pensions and insurance companies, among others. That investor profile has evolved over time.
“Initially, it was fair to characterize HYG as more of a retail product when it first launched,” Laipply said. “But over time, as it's grown in both size and liquidity, investors of all sizes have started to find real utility in this strategy.”
Die-Hard Misconceptions About HYG
There are many who believe that somehow having HYG trade on an exchange creates potential stress on the market. ETFs often get a bad reputation for that sort of thing, according to Laipply. But that’s a “misconception.”
“If anything, giving the exposure the ability to trade in two different places effectively allows for the most efficient clearing of risk,” he said.
Outlook For High-Yield Bonds
The latest BlackRock market commentary said that credit spreads have tightened a lot, and there could be more downside risk at current levels than potential for price appreciation.
To Laipply, the core message is that the firm is now “neutral” on high-yield bonds: “But that doesn't mean negative. It means that we think high yield as an asset class serves a very vital role for income generation in the portfolio.”
As he put it, you’d own high-yield bonds for one of two reasons: for attractive value following a “cheapening in the market,” or as an income-generating asset class. Right now, Laipply says the high-yield bond market is offering more income than value.
Chart courtesy of StockCharts.com
Contact Cinthia Murphy at [email protected]