High Yield Outflows Hit Record. Outperformance Narrowing
Sober Look | Jul 14, 2013 02:44AM ET
An investment in the S&P 500-indexed portfolio right before the financial crisis and held through today would certainly outperform an investment in junk bonds, right? Wrong.
The chart below shows the returns of two major HY ETFs (SPDR Barclays High Yield Bond Total Return ETF (JNK)--in blue, and iShares iBoxx Dollar High Yield Corporate Bond ETF--in orange) and the largest S&P 500 ETF (red). Since the end of 2008, junk bonds have consistently outperformed. As one HY trader pointed out "all of you stock pickers were in the wrong asset class".
But now, with interest rates on the rise and fixed income markets out of favor, that gap has been narrowing. Relative to other fixed income products, junk bonds have held up quite well - so far. What worries some HY investors is that junk bond pricing is very dependent on fund flows. Equities are also impacted by money moving in and out of ETFs and mutual funds, but not nearly to the same extent as corporate bonds. And the recent trend in HY bond flows is alarming. The outflows hit an annual record recently.
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