High yield ETFs have been experiencing substantial outflows over recent weeks, as investors’ attitudes towards riskier bonds have cooled following a setback in the asset class’s performance.
TrackInsight’s data shows high yield bond ETFs have suffered over €1bn in outflows over five days to 8 November, after losing some €545m on 25 October.
Over the past month, the asset class as a whole has seen $2.5bn of withdrawals, according to EPFR.
Investor caution has been driven by pronounced weakness in US junk bonds, at the same time as the US stock market saw its first weekly decline since September, with the S&P 500 closing the week to 10 November 0.2% lower.
Many of the key high yield issuers in the US, which make up large holdings in high yield ETFs, have recently reported weak quarterly results, creating selling pressures.
The fears were further exacerbated by the decision of one of the largest US power generation companies, NRG Energy, to pull plans for an $870m bond sale late last Thursday on account of unsuitable market conditions, according to the Financial Times.
Some of the largest US high yield funds were hit by the news, such as State Street’s $13bn high yield ETFs (trading under the ticket JNK), and the $19bn product from iShares (HYG), although both rebounded the following day.
However, on Friday a further blow to the asset class came from junk-rated coal producer Canyon Consolidated Resources, which also cancelled a planned bond sale.
The recent outflows could mark a change of appetite towards the asset class, which has enjoyed strong support from investors so far in 2017.
Over the year to 8 November, high yield bond ETFs have taken in some €13.8bn in cumulated flows, despite delivering a negative performance of -2.8% over the period.
However, in a note issued on Friday, Bank of America analysts said the sell-off in the asset class was “both natural and welcome”, given the “relentless” tightening in high yield bond spreads over recent months, Reuters reports.
They also added the recent sell-off, though relatively significant, was not “extreme” by the standards of the asset class, which can experience relatively choppy flows.