Investors dump high-yield bonds ETFs

High-Yield Bonds ETFs have witnessed roughly $5.3 billion of outflows between February 1st and February 25th as rising inflation and the Russian invasion of Ukraine have startled investors in risky assets. High-yield bonds, also known as junk bonds, are risky investments that have higher rates of default but offer significantly higher returns.

High-Yield Bonds ETFs flows action in America

Among the biggest bleeders in February were the SPDR Barclays High Yield Bond ETF (JNK, -$1,421 million), iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$1,221 million), X-trackers USD High Yield Corporate Bond ETF (HYLB, -$852 million), iShares Broad USD High Yield Corporate Bond ETF (USHY, -$704 million), and iShares Fallen Angels USD Bond ETF (FALN, -$401 million)

JNK ETF seeks to track the Bloomberg High Yield Very Liquid Index and invests in US dollar-denominated high yield corporate bonds with above-average liquidity. The fund is highly diversified with 1,343 holdings and has an average coupon rate of 5.55%. In terms of sector exposure, consumer cyclical has the highest share (20.73%), followed by communications (16.91%), consumer non-cyclical (13.83%), energy (12.02%), capital goods (8.39%) — among others. 47.9% of the fund's corporate holdings are rated BB, 39.27% B, 11.48% CCC or lower, and just 1.26% are rated BBB or higher. As for the average maturity, 33.39% of the bonds have a maturity between 7-10 years, 33.46% between 5-7 years, and 26.34% between 3-5 years. The fund has a total expense ratio of 0.4% and trades primarily on the NYSE Arca Exchange.

Offsetting some of these outflows were the Xtrackers Low Beta High Yield Bond ETF (HYDW, $530 million), First Trust Senior Loan ETF (FTSL, $247 million), and FlexShares High Yield Value-Scored Bond Index Fund (HYGB, $49 million). The HYDW ETF seeks to track the Solactive USD High Yield Corporates Total Market Low Beta Index and invests mainly (90%) in U.S. high yield rated corporate bond market issued in USD and that have lower beta relative to the market.

The fund is highly diversified with 615 constituents and 290 issuers, and its holdings average final maturity of 5.2 years. The holdings are diversified across different sectors with consumer discretionary having the highest allocation (21.25%). Energy, healthcare and communication come next with 12.85%, 10.51% and 10.02% respectively. 77.44% of the fund's holdings are rated BB and 17.92% are rated BB. 33.58% of the bonds have a maturity between 3-5 years, 26.94% between 5-7 years, and 21.74% between 7-10 years. The fund has an expense ratio of 0.25% and trades primarily on the NYSE Arca.

High-Yield Bonds ETFs flows action in Europe

On the other side of the Atlantic, close to $1 billion of investor funds exited high-yield bond ETFs in February. The biggest flow dispensers were iShares $ High Yield Corp Bond UCITS ETF (SHYU, -$357 million), SPDR Bloomberg Euro High Yield Bond UCITS ETF (SYBJ, -$180 million), and iShares $ High Yield Corp Bond Hedged EUR UCITS ETF (IHYE, -$107 million).

The SHYU seeks to track the Markit iBoxx USD Liquid High Yield Capped Index and invests in US Dollar-denominated high yield corporate bonds. The fund is highly diversified with 1304 holdings and has a weighted average coupon rate of 5.13%. The holdings are spread across different sectors with energy having the highest share (19.82%). Communications, consumer cyclical, and consumer non-cyclical come next with 17.17%, 13.89%, and 12.85% respectively. Roughly 72% of the constituents have a credit quality of BB while 20% are rated B. In terms of maturity, 26.21% of the holdings mature in 3-5 years, 21.7% in 7-10 years, and 19.38% in 5-7 years. SHYU has a total expense ratio of 0.50% and trades on multiple European exchanges such as the London Stock Exchange (SHYU, GBP or IHYU, USD), the Deutsche Boerse Xetra (ISOR, EUR), the SIX Swiss Exchange (IHYU, CHF), and the Borsa Italiana (IHYU, EUR).

On the other hand, ETFs that have attracted inflows include Xtrackers II iTraxx Crossover Short Daily Swap UCITS ETF (XTC5, $112 million), L&G India INR Government Bond UCITS ETF (TIGR, $82 million), and Xtrackers USD High Yield Corporate Bond UCITS ETF (XUHE, $41 million).

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