The $1.1 billion of withdrawals from junk-bond ETFs in the week ended Feb. 6 compares with $324.1 million pulled in the same period from mutual funds, which manage $290.2 billion, according to RBS citing Lipper data.
‘Ridiculous’ Values
The ETFs have lost $568.1 million of deposits this year while mutual funds reported $1 billion of inflows, the first directional divergence since the quarter ended Sept. 30, 2011, RBS data show.
That period 16 months ago “was a bad time for corporate credit,” said Bonnie Baha, the head of global developed credit at Los Angeles-based DoubleLine Capital LP, which oversees about $53 billion. “Everyone agrees that valuations are ridiculous yet money has continued to flow into the sector.”
Investors put $211 million into non-ETF mutual funds that invest in high-yield bonds this week while pulling $540 million from junk-debt ETFs, according to a Feb. 14 Bank of America report.
The Federal Reserve’s policy of holding benchmark borrowing costs in a range of zero to 0.25 percent since December 2008 prodded investors to buy riskier assets as Treasury yields plunged to an unprecedented 1.39 percent on July 24 before rising to 2.03 percent on Feb. 13, the highest since last April.
Mutual funds and ETFs have been among the largest buyers of corporate bonds in recent years, credit strategists led by Stephen Antczak at Citigroup in a Feb. 1 report.
‘Fast Money’
As a result, the corporate bond market has grown more vulnerable to losses that are accelerated by outflows when U.S. Treasury rates rise because “these buyers tend to be backward- looking and sensitive to total returns, particularly negative total returns,” they wrote.
ETFs are losing investors who are seeking better opportunities in specific credits as they see the diminishing potential returns for the broader market, Tchir said.