April 20, 2018

High-Yield Bond Funds Attract Investor Attention

by Patrick Keon

High-yield bond funds (including both mutual funds and ETFs) had net inflows of $3.0 billion for the fund-flows week ended Wednesday, April 18, 2018. This number represented their eighth largest weekly positive net flows ever (Thomson Reuters Lipper started tracking the data in 1992) and the largest since the $3.8-billion increase for the fund-flows week ended December 14, 2016. The start of the Q1 2018 corporate earnings season appeared to outweigh geopolitical concerns and signal that investors think it is now “risk-on” time. Earnings estimates for S&P 500 Index companies indicated Q1 earnings growth of 17.3%—the highest level since 2011—driving the broad equity markets to impressive returns for the week and enabling high-yield bond funds to reverse a long trend of net outflows. (There is a strong correlation between equities and high-yield bonds; junk bonds carry more risk [like an equity] than an investment-grade bond does.)

Prior to Q2 2018 high-yield bond funds had experienced five straight quarters of net outflows during which they saw their coffers shrink $41.1 billion, with almost half of these net outflows (-$19.8 billion) occurring during the very volatile Q1 2018. The latest week’s results pushed Q2 2018 net inflows for the group to $3.4 billion so far. High-yield bond mutual funds (+$1.8 billion) accounted for the majority of the weekly net inflows, while high-yield bond ETFs contributed $1.2 billion of net-positive flows. The net inflows for both mutual funds and ETFs were heavily concentrated, with five mutual funds and two ETFs responsible for 67% and 75%, respectively, of their group’s increase. On the mutual fund side of the ledger BlackRock High Yield Bond Portfolio (+$490 million), Rydex High Yield Strategy Fund (+$245 million), JPMorgan High Yield Fund (+$209 million), MainStay MacKay High Yield Corporate Bond Fund (+$159 million), and TIAA-CREF High-Yield Fund (+$98 million) led the way. Meanwhile, for ETFs it was SPDR Bloomberg Barclays High Yield Bond ETF (JNK, +$797 million) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$121 million).


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