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High-Yield ETFs Paying Nearly 6% Benefit from Flight to Risk


Investors are buying high-yield bond ETFs hand over fist following the Federal Reserve’s expanded quantitative easing program. In terms of performance, junk bond ETFs have nearly doubled last year’s returns so far in 2012.

Investors pumped nearly $4 billion into junk bonds in the latest week with 40% of the total going to high-yield ETFs, Bloomberg News reports.

Junk bond ETFs include SPDR Barclays Capital High Yield Bond (JNK), iShares iBoxx High Yield Corporate Bond (HYG), PIMCO 0-5 Year High Yield Corporate Bond Index Fund (HYS) and PowerShares High Yield Corporate Bond Portfolio (PHB).

JNK and HYG are the largest ETFs in the category and are paying yields of nearly 6%. The funds have posted total returns of more than 9% year to date. Investors are moving into riskier assets on central bank stimulus, and are also seeking fatter yields in a low-interest-rate environment. [Higher Yields, Regulation Drive Junk Bond ETF Boom]

Large institutional investors are using high-yield ETFs to trade speculative-grade debt with one transaction rather than building portfolios of individual bonds.

High-yield ETFs have grown by 57% this year to nearly $32 billion in the five largest funds, Bloomberg reported.

SPDR Barclays Capital High Yield Bond

Full disclosure: Tom Lydon’s clients own HYG and JNK.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.