These ETFs Inflows Show Investors Not Leaving Junk Bonds
An interesting trend pertaining to high-yield bond ETFs started last year. That being whenever the iShares iBoxx $ High Yield Corporate Bond Fund (NYSE: HYG) or the SPDR Barclays High Yield Bond ETF (NYSE: JNK) experienced outflows, it was interpreted as a sign that investors were altogether fleeing junk bonds.
Inflows to at least two other ETFs prove that is far from being accurate. Market Vectors announced its Market Vectors International High Yield Bond ETF (NYSE: IHY) has surpassed the $200 million in assets under management level. As of April 15, IHY had $260 million in AUM, according to Market Vectors data.
That is an impressive haul given that junk bond ETFs have been left for dead by some in the mainstream financial press on multiple occasions in recent months. IHY's asset-gathering ability is also noteworthy given that the ETF is a mere 54 weeks old.
"The recent flows that we have seen suggest that investors are not giving up on bonds, but they are making a significant change in how they allocate to the asset class," said Market Vectors portfolio manager Fran Rodilosso in a statement. "Short-term high-yield, emerging markets credit and floating rate funds have gained significant assets during the quarter. At the same time, some U.S.-centric high-yield ETFs have seen fairly large outflows."
IHY has an average modified duration of 4.16 years, a yield to worst of 5.34 percent and average yield to maturity of 5.94 years. The ETF, which is home to 358 holdings, has a 30-day SEC yield of 5.09 percent. IHY's top-five country weights are the U.K., France, Germany, Canada and Italy.
Another Market Vectors junk bond ETF that recently topped the $200 million AUM level is the Market Vectors Emerging Markets High Yield Bond ETF (NYSE: HYEM). Inflows to HYEM have arguably been stunning. The fund had just $27 million in assets in late December, but that number surged to $236.1 million as of April 15.
"Currently, high yield is already shorter duration than investment grade debt on average," said Rodilosso. "Many investors remain more comfortable with credit risk than they are with interest rate duration risk, as evidenced by continuing demand for high yield in general."
Inflows to HYEM are made all the impressive when realizing the ETF is not even a year old. The fund has an average modified duration of 4.47 years, an average yield to worst of 6.08 percent and an average yield to maturity of 6.42 percent.
HYEM has a 30-day SEC yield of 5.6 percent. The fund's five largest country weights are China, Russia, Mexico, Indonesia and Venezuela. Over 87 percent of HYEM's 212 holdings are rated BB or B. Both ETFs have annual expense ratios of 0.4 percent.
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