Largest junk bond ETF HYG experiences mass investor exodus (2024)
The iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA:HYG), the world’s largest junk bond exchange traded fund, has experienced a mass exodus of investors over the past week and a half. According to Bloomberg data, the fund has seen $3B of investor capital outflows over a seven-day period.
Looking longer-term, the ETF has lost $5.78B in retractions in 2022. HYG now holds $14.4B assets under management and finds itself -4.7% year-to-date.
The combination of a rising-rate environment, a period of high inflation and a hazy near-term economic future has lowered the appeal to high-yield bonds.
Peter Chatwell, head of multi-asset strategy at Mizuho International told Bloomberg “It’s a double whammy -- rates repricing higher, equities likely to reprice lower, meaning high-yield companies mechanically have higher leverage and a more expensive refinancing rate.”
Chatwell added: “That’s not to mention the general softness in earnings that looks likely from the stagflation.”
HYG is not the only junk bond ETF that has struggled in 2022. Three other funds and their year-to-date price action are as follows:
SPDR Bloomberg High Yield Bond ETF (NYSEARCA:JNK) -4.9%, VanEck Fallen Angel High Yield Bond ETF (NASDAQ:ANGL) -7.3%, and Deutsche X-trackers USD High Yield Corporate Bond ETF (NYSEARCA:HYLB) -4.8%.
Its core exposure through the iBoxx index it tracks is solid, covering the most liquid corner of the junk bond market. HYG replicates much of the overall junk bond market, but often with shorter maturity, less interest-rate sensitivity, and also less yield. HYG tends to tracking its index more closely than most.
The largest Investment Grade Bonds ETF is the iShares Core U.S. Aggregate Bond ETF AGG with $104.66B in assets. In the last trailing year, the best-performing Investment Grade Bonds ETF was TMV at 45.37%.
Junk bonds are riskier than investment-grade bonds because they're issued by companies that are on less stable financial footing. They have higher default rates than investment-grade bonds.
Junk bonds are risky assets but due to their high risk, they come with returns that are higher than safer, investment-grade bonds. Investors willing to take on higher risk for higher returns would buy junk bonds.
HYG has a dividend yield of 5.93% and paid $4.50 per share in the past year. The dividend is paid every month and the last ex-dividend date was Apr 1, 2024.
HYGW should outperform relative to HYG when high-yield corporate bond indexes are down. Said indexes are down YTD, but we can't analyze HYGW's performance YTD, as the fund is incredibly new, and was created after bond indexes went crashing down.
For many investors, investing in the right bond funds can be a better option than holding a portfolio of individual bonds. Bond ETFs can provide better diversification — often for a lower cost — can offer higher liquidity, and can be easier to implement.
Bonds with a rating below BBB/Baa have a higher likelihood of failure to repay their debts, and they're called speculative-grade or non-investment grade bonds—a.k.a. junk bonds. They're normally issued by companies that are relatively new or that have faced recent financial difficulties.
A bond that has a high risk of the underlying company defaulting is called a junk bond. Companies that issue junk bonds are typically start-ups or companies that are struggling financially. Junk bonds carry risk since investors are unsure whether they'll be repaid their principal and earn regular interest payments.
Introduction: My name is Rueben Jacobs, I am a cooperative, beautiful, kind, comfortable, glamorous, open, magnificent person who loves writing and wants to share my knowledge and understanding with you.
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