Investors Losing Love For Junk Bond ETFs

August 06, 2014

Big outflows in July correspond with a downturn in performance.

July was a tough month for high-yield or “junk” bond ETFs. They faced massive asset outflows, as investors trimmed their exposure to risky assets amid global uncertainties and an outlook for higher rates ahead in the U.S. While August has brought some recovery—at least in terms of performance—many expect investor sentiment toward junk debt to remain in a wait-and-see mode for now.

As one market analyst put it, the outflows from high-yield funds betray the market’s growing risk aversion.

That preference became more pronounced as the month wore on. Investors were faced with an undeterred Federal Reserve that showed it would continue to taper easy money policies as planned. News of a defaulting Argentina, which triggered concerns about liquidity in global credit markets, and a relatively mixed earnings season, didn’t help ease investors’ nerves either.

Uncertainty Fuels Caution

“In most environments, high-yield fund flows provide a good barometer for the market’s risk preference,” Anthony Parish of Sage Advisors told

“When investors flee from high-yield funds, they’re saying, ‘I’m more concerned about keeping the money I have than I am about trying to make more,’” he said. “It’s about defense over offense.”

Outflows Impact Biggest Funds

That caution led to $1.6 billion in net outflows from the iShares iBoxx $ High Yield Corporate Bond ETF (HYG | B-69)—the biggest junk bond ETF in the market today, with $11.6 billion in total assets. HYG was, in fact, the least popular ETF last month, and the bleeding hasn’t stopped yet. Net redemptions since Aug. 1 are already near $10 million, according to our data.

Other ETFs in the segment, such as the $8.9 billion SPDR Barclays High Yield Bond ETF (JNK | B-66) and the $4.2 billion Pimco 0-5 Year High Yield Corporate Bond ETF (HYS | B-86) have also been bleeding assets.

In July, they lost $523 million and $754 million, respectively. The outflows came hand in hand with a slipping performance, as the one-month chart below shows.



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