{"id":1376,"date":"2023-10-15T09:45:13","date_gmt":"2023-10-15T09:45:13","guid":{"rendered":"https:\/\/connectwithfund.com\/investment\/investors-shun-high-yield-debt-etfs-despite-gains-as-broader-bond-market-stumbles\/"},"modified":"2023-10-15T09:45:14","modified_gmt":"2023-10-15T09:45:14","slug":"investors-shun-high-yield-debt-etfs-despite-gains-as-broader-bond-market-stumbles","status":"publish","type":"post","link":"https:\/\/connectwithfund.com\/?p=1376","title":{"rendered":"Investors shun high-yield debt ETFs despite gains as broader bond market stumbles"},"content":{"rendered":"
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Hello! This week\u2019s ETF Wrap digs into junk bond performance and flows.<\/p>\n

Please send feedback and tips to christine.idzelis@marketwatch.com or isabel.wang@marketwatch.com. You can also follow me on X at\u00a0@cidzelis<\/a>\u00a0and find me on\u00a0LinkedIn. Isabel Wang is at\u00a0@Isabelxwang<\/a>.<\/p>\n

Sign up\u00a0<\/strong>here<\/strong>\u00a0for our weekly ETF Wrap.<\/strong><\/p>\n

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Investors have been fleeing exchange-traded funds that buy corporate junk debt, a risky pocket of fixed income that has been outperforming the total U.S. investment-grade bond market as yields surge.\u00a0<\/p>\n

The jump in U.S. Treasury rates in 2023 have broadly hurt valuations in the bond market, with the iShares Core U.S. Aggregate Bond ETF losing 0.7% this year through Wednesday on a total return basis, according to FactSet data.\u00a0<\/p>\n

But junk bonds have posted gains so far in 2023, with their higher yields helping to absorb a drop in prices. The ICE BofA US High Yield Index had an effective yield of around 9% on Wednesday, according to data on the website of the Federal Reserve Bank of St. Louis.<\/p>\n

\u201cYou\u2019re getting a lot more carry,\u201d said Steve Laipply, global co-head of bond ETFs at BlackRock, by phone. \u201cThat helps cushion price declines.\u201d<\/p>\n

U.S. high-yield bonds compensated investors with a 4.33 percentage-point spread over comparable Treasurys as recently as Oct. 6, according to CreditSights data.\u00a0<\/p>\n

The iShares iBoxx $ High Yield Corporate Bond ETF has a total return of around 4% in 2023 through Wednesday, FactSet data show. The SPDR Bloomberg High Yield Bond ETF returned a total of around 4.8% over the same period.\u00a0<\/p>\n

High-yield, or junk, bond ETFs were falling Thursday as Treasury yields rose, after a report on inflation showed that headline consumer prices rose slightly more than Wall Street expectations for September.<\/p>\n

Shares of the iShares iBoxx High Yield Corporate Bond ETF
\n HYG
\n were down 0.5% on Thursday afternoon, while the SPDR Bloomberg High Yield Bond ETF
\n JNK
\n fell 0.6%, according to FactSet data.\u00a0<\/p>\n

The iShares Core U.S. Aggregate Bond ETF
\n AGG,<\/span>
\n which tracks an index of the total U.S. investment-grade bond market including Treasurys, had a slightly larger decline of 0.9% in Thursday afternoon trading.\u00a0<\/p>\n

Earlier this month, the iShares iBoxx $ High Yield Corporate Bond ETF traded more than $10 billion on Oct. 4 to mark its highest daily trading volume since its inception in 2007, a spokesperson for BlackRock said in an email that same week.\u00a0<\/p>\n

That speaks to the fund being an integrated part of credit markets along with the iShares iBoxx $ Investment Grade Corporate Bond ETF
\n LQD,<\/span>
\n said Laipply.\u00a0<\/p>\n

The iShares iBoxx $ Investment Grade Corporate Bond ETF, which has around $29 billion of assets under management, has lost 0.4% this year on a total return basis through Wednesday, according to FactSet data.\u00a0<\/p>\n

The smaller iShares iBoxx $ High Yield Corporate Bond ETF is the largest exchange-traded fund targeting corporate junk bonds, according to Aniket Ullal, head of ETF data and analytics at CFRA Research. The fund has around $13 billion of assets under management, FactSet data show.<\/p>\n

Ullal is wary of reaching for yield in the junk market at a time when investors can get attractive rates in the U.S. Treasury market.<\/p>\n

\u201cWhen you got rates so high on sovereign debt, it doesn\u2019t really make sense for people to take on so much credit risk,\u201d he said in a phone interview.\u00a0<\/p>\n

The yield on the 10-year Treasury note
\n BX:TMUBMUSD10Y
\n climbed 11.5 basis points on Thursday to 4.710%, while 2-year Treasury rates
\n BX:TMUBMUSD02Y
\n rose 6.6 basis points to 5.069%, according to Dow Jones Market Data. Yields on six-month T-bills
\n BX:TMUBMUSD06M
\n were even higher, at around 5.56% on Thursday afternoon, according to FactSet data.<\/p>\n

While high-yield bond ETFs are up so far this year on a total return basis, investors worry that corporate borrowers of junk bonds are vulnerable in an economic downturn and face refinancing risks.<\/p>\n

Read:<\/strong> U.S. corporate borrowers face record refinancing needs as funding costs reach 13-year high, Moody\u2019s says<\/p>\n

The iShares iBoxx $ High Yield Corporate Bond ETF has seen $2.5 billion in outflows this year, including $391 million over the past week through Wednesday, FactSet data show. And investors have pulled $3.4 billion from the SPDR Bloomberg High Yield Bond ETF in 2023, including about $942 million in the past week through the same date.<\/p>\n

As usual, here\u2019s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.<\/p>\n

The good\u2026<\/h2>\n\n\n\n\n\n\n\n\n
\n Top Performers<\/strong><\/p>\n<\/td>\n\n %Performance<\/strong><\/p>\n<\/td>\n<\/tr>\n
\n Invesco Solar ETF
\n TAN\n <\/td>\n		\n 8.0<\/p>\n<\/td>\n<\/tr>\n
\n VanEck Gold Miners ETF
\n GDX<\/p>\n<\/td>\n		\n 7.6<\/p>\n<\/td>\n<\/tr>\n
\n KraneShares CSI China Internet ETF
\n KWEB\n <\/td>\n		\n 7.5<\/p>\n<\/td>\n<\/tr>\n
\n First Trust Natural Gas ETF
\n FCG<\/p>\n<\/td>\n		\n 7.2<\/p>\n<\/td>\n<\/tr>\n
\n SPDR S&P Aerospace & Defense ETF
\n XAR\n <\/td>\n		\n 7.1<\/p>\n<\/td>\n<\/tr>\n
\n Source: FactSet data through Wednesday, Oct. 11. Start date Oct. 5. Excludes ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater<\/p>\n<\/td>\n\n <\/td>\n<\/tr>\n<\/table>\n

\u2026and the bad<\/h2>\n\n\n\n\n\n\n\n\n
\n Bottom Performers<\/strong><\/p>\n<\/td>\n\n %Performance<\/strong><\/p>\n<\/td>\n<\/tr>\n
\n ProShares Bitcoin Strategy ETF
\n BITO\n <\/td>\n		\n -2.8<\/p>\n<\/td>\n<\/tr>\n
\n iShares U.S. Medical Devices ETF
\n IHI\n <\/td>\n		\n -2.6<\/p>\n<\/td>\n<\/tr>\n
\n YieldMax TSLA Option Income Strategy ETF
\n TSLY\n <\/td>\n		\n -2.4<\/p>\n<\/td>\n<\/tr>\n
\n iShares MSCI Saudi Arabia ETF
\n KSA\n <\/td>\n		\n -2.4<\/p>\n<\/td>\n<\/tr>\n
\n Sprott Uranium Miners ETF
\n URNM\n <\/td>\n		\n -1.8<\/p>\n<\/td>\n<\/tr>\n
\n Source: FactSet data <\/p>\n<\/td>\n\n <\/td>\n<\/tr>\n<\/table>\n

New ETFs<\/h2>\n
    \n
  • \n J.P. Morgan Asset Management announced on Thursday the launch of the JPMorgan Active Bond ETF JBND, an actively managed fund with \u201ca value-driven approach that emphasizes intermediate bonds of the highest quality.\u201d<\/p>\n<\/li>\n
  • \n REX Shares said Oct. 11 that it launched the REX FANG & Innovation Equity Premium Income ETF
    \n FEPI,<\/span>
    \n a fund aiming to provide exposure to \u201cinnovative, large-cap technology stocks along with the potential for high monthly income using a sophisticated covered call strategy.\u201d<\/p>\n<\/li>\n
  • \n YieldMax announced on Oct. 11 the launch of the YieldMax SQ Option Income Strategy ETF
    \n SQY,<\/span>
    \n which seeks to provide monthly income through a synthetic covered call strategy on Block Inc.
    \n SQ,
    \n -5.02%<\/bg-quote>.<\/span><\/p>\n<\/li>\n
  • \n Goldman Sachs Asset Management has launched the actively managed Goldman Sachs Small Cap Core Equity ETF
    \n GSC,<\/span>
    \n which began trading Oct. 5.<\/p>\n<\/li>\n<\/ul>\n

    Weekly ETF reads<\/h2>\n<\/p><\/div>\n<\/div>\n