Tag Archives: jnk

This Expert Says: “RISK OFF re High Yield Bond and Utilities ETFs”

MarketsMuse.com update courtesy of coverage by TheStreet.com

Investors should avoid the Utilities Select Sector SPDR ETF (XLU) despite the recent dovish talk by Federal Reserve Chair Janet Yellen, said Mohit Bajaj, Director of ETF Trading Solutions at WallachBeth Capital. Bajaj added that rising rates will hurt the XLU because power companies are levered to debt financing which will become more expensive. He is also bearish on the SPDR Barclays High Yield Bond ETF (JNK) due to the potential for rising rates and problems in the energy sector. On the other hand, Bajaj is bullish on the Financial Select Sector SPDR ETF (XLF) because the large-cap banks will benefit from rising rates and have passed their stress tests. Below is the video interview..

Junk Bond ETFs: SOS for HY Sector ($USO, $XOP, $JNK, $HYG)

etf-logo-finalBelow extract is courtesy of Oct 13 edition of ETFtrends.com and senior editor Todd Shriber

The United States Oil Fund (NYSEArca: USO) is off 6.4% in the past month as West Texas Intermediate, the U.S. benchmark oil contract, ominously descents to $80 per barrel.

Oil’s slide has wrought havoc for futures-based ETFs, such as USO, as well as scores of equity-bae funds with energy sector exposure. After a 9.5% third-quarter loss, was once the top-performing sector in the S&P 500 earlier this year has now turned into one of the worst groups. [Dour View on Energy ETFs]

Of the 25 worst-performing exchange traded funds over the past month, 12 are equity-based energy funds. However, weakness in the energy sector could be problematic for some an asset class some investors may not be overlooking as a victim of energy’s slide: High-yield bonds and the corresponding ETFs.

Booming production at the Eagle Ford Shale and other shale formations has helped make Texas the envy of large state economies. That same theme has also been viewed as one of the more favorable long-term catalysts for ETFs ranging from the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) to the Market Vectors Unconventional Oil & Gas ETF (NYSEArca: FRAK), but oil’s decline is threatening producers ability to profitably tap North American shale plays. [Fracking ETFs Foiled by Slumping Oil Prices]

“Texas is the anchor to shale production, employment growth, positive real estate trends, and overall positive moral. With Crude Oil at or below the cost of production for many project, the State with the highest economic multiple needs to contract,” said Rareview Macro founder Neil Azous in a research note.

But there’s more, including the threat falling oil prices pose to the high-yield bond market. Continue reading

ETF Investors Step Up Their Short Game in Junk Bonds

wsj_printCourtesy of Chris Dietrich, WSJ

After last month’s bond market selloff, many investors are hunting for strategies that can still provide high yields but won’t get hurt by rising interest rates.

Increasingly, they are turning to exchange-traded funds focused on short-term junk bonds, which promise those investors just what they are looking for.

Pacific Investment Management Co.’s Pimco 0-5 Year High Yield Corporate Bond ETF soaked up $602 million since the start of May, just as rates started to tick higher, according to IndexUniverse. The SPDR Barclays Short Term High Yield Bond ETF took in $318 million.

At the same time, investors are heading for the exits in longer-term high-yield bond funds.

The iShares iBoxx $ High Yield Corporate Bond ETF saw outflows of $1.4 billion since May. State Street Global Advisors’ SPDR Barclays High Yield Junk Bond ETF lost $1.8 billion.

Shorter-term ETFs have proved the better option during the latest bout of market duress. Both styles of junk-bond ETFs lost ground last quarter, but the short-term variety’s declines are less severe.

The Pimco 0-5 Year High Yield Corporate Bond ETF and the SPDR Short Term High Yield ETF lost less than 1%, including coupons dividends, in the second quarter, according to Morningstar. The iShares and State Street longer-duration funds, meanwhile, declined more than 2%.

And so far in 2013, the short-term funds returned more than 1%, while their counterparts are in the red.

“Shorter-term junk bonds are lower volatility, so in a downdraft there’s a lot less downside than regular junk bonds,” said Chun Wang, co-portfolio manager at Leuthold Weeden Capital Management, an investment manager based in Minneapolis. Continue reading

James Grant: Short $LQD Before Bonds Fall

indexuniverseCourtesy of Olly Ludwig

Sooner or later the bond market is going to start falling, and a perfect exchange-traded vehicle to play the unraveling of the more than three-decade rally in fixed-income markets is “LQD,” a corporate bond fund that happens to be one of the largest fixed-income ETF in the world, James Grant told attendees at IndexUniverse’s Inside ETFs conference this week.

But Grant, the editor and publisher of Grant’s Interest Rate Observer, said that while he is short the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD), it’s terribly difficult to time such trades, as markets are “unreliably efficient” and “reliably inefficient” and, moreover, the Federal Reserve’s loose-money policies since 2008 essentially mean that interest rates are not in a free market.

Grant’s comment about LQD came in response to a question from IndexUniverse Chief Executive Officer and founder Jim Wiandt, who introduced Grant and asked what investors—faced with the prospect of the end of a secular bull market in bonds since the early 1980s—should now do.

“Short,” said Grant. “I’m short something called LQD.”  The ETF, the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD) is quite liquid and has $24 billion in assets under management.

Grant, a longtime critic of the Fed and a proponent of a return to the gold standard, was the grand finale at the 6th Annual Inside ETFs conference, which took place in Hollywood, Fla. from Feb. 10-12. The event, which has become the see-and-be seen event in the world of ETFs, was attended by nearly 1,300 people, most of them financial advisors and fund sponsors. Continue reading

ETFtrends: Are High-Yield Bond ETFs Overvalued After Big Run?

etftrends logo imagesCourtesy of John Spence

Junk bond ETFs have enjoyed four solid years of returns while investors’ hunger for income-producing assets has pushed the sector’s yields down near record-low levels. As 2013 gets underway, some investors are again wondering if high-yield corporate debt is overvalued after such a strong run.

The only problem is that investors don’t have too many other options when it comes to finding yield with the Federal Reserve committed to keeping rates low for a couple more years.

“With record fund inflows in 2012, investors clearly have an appetite for high-yield bond funds,” says Morningstar analyst Timothy Strauts. “The strong investor demand lowered credit spreads, and the high-yield category returned over 14% last year. While yields have been falling, high yield is the only bond category with a 12-month yield still above 5%.”

SPDR Barclays High Yield Bond (NYSEArca: JNK) and iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) are the largest ETFs that invest in high-yield corporate debt. The funds were big sellers in 2012 and allow investors to buy a basket of high-yield bonds with one trade and low fees.

The sector’s rally has pushed the average yield on speculative grade bonds below 6% for the first time ever. [Junk ETFs Highest Since 2008]

Fed-fueled bubble?

“One of the aims of the Federal Reserve interest rate policy is to increase risk-taking across the capital markets. High yield is one of the main beneficiaries of the Fed’s current policy. With yields of investment-grade securities below 3%, investors have been forced to look elsewhere for income. Many institutional investors that in the past only chose investment-grade bonds have been buying high yield to meet their return targets,” says Strauts at Morningstar. Continue reading

Popular ETFs You Should Never Use..

  Courtesy of CNBC..By: Lee Brodie

Exchange traded funds are among the more popular ways to trade. Called ETFs on the Street they allow investors to diversify risk through a basket of stocks.

A pro like trader Steve Grasso of Stuart Frankel who works on the floor of the NYSE, can barely move a foot or two without hearing “Buy the XLF or get me out of the GLD, now!’

But these and other popular ETFs may not always be your best bet.

According to Matt Hougan, IndexUniverse president of ETF analytics, there are alternative ETFs that aren’t as widely known, but may actually better serve your needs. He profiled five of them on CNBC’s Fast Money. They follow:

Sector      Widely Traded
Gold                  GLD

Hougan’s Alternative: IAU

Looking at the GLD, Hougan says the IAU  holds exactly the same thing. “It’s plenty liquid and owning it is about half the cost of the GLD.”

Sector         Widely Traded
Financials                XLF 

Hougan’s Alternative: IYF

Hougan says this is something of a popularity content. “People know the XLF .” However, the XLF only tracks large caps. (Click here to see top holdings on Yahoo! Finance.) If you want exposure to the entire banking sector Hougan recommends the IYF  for “the full spectrum.” Continue reading

Are Junk Bond ETFs Sending Signals? (HYG, JNK, SJNK)

By The ETF Professor
Benzinga Staff Writer

The proliferation of new junk bond ETFs in 2012 has been nothing short of impressive and two industry stalwarts, BlackRock’s (NYSE: BLK) iShares and Van Eck Global’s Market Vectors unit, have been leading the charge.

But it is some of the more seasoned high-yield bonds that are catching traders’ eyes on Thursday. Following an usual $725 million redemption last week in the $11.1 billion SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK), activity is picking up across the board in highly liquid, large asset junk bond ETFs.

While the redemption in JNK last week wasn’t a true redemption because the seller allegedly took delivery of the actual bonds, unusual activity is permeating the high-yield bond ETF space today. JNK has already double its average daily volume.

“The selling we have seen today is not for receipt of bonds. This looks to be an exit trade from this asset class,” ETF market maker WallachBeth Capital said in a note.

“Considering that Germany may throw in the towel on austerity, the U.S. could enter round 3 of quantitative easing, the banks are under increased regulatory pressure and still the lingering Greek issues, it isn’t surprising that some might see higher rates on the horizon,” Chris Hempstead, head of ETF execution services at WallachBeth, said in an interview with Benzinga. “That would not bode well for these funds.” Continue reading

State Street’s Junk ETF Sees Biggest Redemptions Since 07

An investor used State Street Corp. (STT)’s exchange-traded fund to anonymously obtain almost $780 million of speculative-grade bonds without moving prices in the secondary market.

The investor on May 10 exchanged as much as 19.7 million shares in the SPDR Barclays Capital High Yield Bond ETF (JNK) for the equivalent of about $779.3 million in bonds held by the fund, according to data compiled by Bloomberg.

The redemption, the biggest in the four-year history of the $11.4 billion fund, came after the investor had accumulated shares over several weeks, according to the firm that brokered the trade. The investment in the fund, which tracks the Barclays Capital High Yield Very Liquid Bond Index, may mark a new way for investors to gain control over a large group of bonds without tipping off other investors.

“He used the ETF to get his exposure initially; he figured it was an easier way to maintain his anonymity,” said the broker in a telephone interview. “It was a unique approach. This was his plan going into it.”

Click here for the full article from BloombergLP

High Yield Junk Bond ETFs-Eye On Distortions

It appears that our comments re:  junk bond ETFs over the past 6 weeks has inspired main stream media, and in particular, WSJ’s Jason Zweig, to zero in on a talking point raised here last month: the logistics by which certain ETFs are ‘created’ and redeemed, and the potential distortion in prices between the underlying junk held by high yield bond ETFs, and comparable  junk issues that are not components to the most popular high yield bond ETFs. Continue reading

ETF Fund Flow: Trumping Mutual Funds

According to technology and trading firm ConvergEx Group, during the first 6 weeks of 2012, more than $8 billion has flowed in to U.S. Equity ETFs, while nearly $8 billion has “flown out” of U.S. equity mutual funds.

“Some of the commentary surrounding these products has made them sound like the hoof beats which precede the Four Horsemen of the Apocalypse,”  said Nicholas Colas, ConvergEx’s Chief Market Strategiest, alluding to various critiques of ETFs that have emerged over the past 18 months, notably Kauffmann Foundation reports that blamed ETFs for a dead U.S. initial public offering market, and argued huge short interest in some funds could pose systemic risk.

“If you want to understand how investment capital flows play into the year-to-date rally for risk assets, the world of exchange-traded funds is essentially your ‘One Stop Shop,’” Colas said in the note, stressing that whatever negative comments are being made about ETFs, they are a great way to gauge overall sentiment in financial markets.

“But for 2012, you can just as accurately call them the most visible source of capital to help U.S. stocks and other risk assets higher,” Colas wrote.

Most Popular Funds

As far as the individual funds that have really “Killed it” in year-to-date asset gathering this year-to-date, Colas said the ETFs that have pulled in over $1 billion include:

  • iShares iBoxx $ High Yield Corporate Bond Fund (NYSEArca: HYG)
  • iShares MSCI Emerging Markets Index Fund (NYSEArca:EEM)
  • iShares Russell 2000 Fund (NYSEArca:IWM)
  • iShares $ Investment Grade Corporate Bond Fund (NYSEArca: LQD)
  • Vanguard MSCI Emerging Markets ETF (NYSEArca:VWO)
  • Powershares QQQ (NasdaqGM QQQ)
  • SPDR Barclays High Yield Bond ETF (NYSEArca: JNK)
  • SPDR Gold Trust (NYSEArca: GLD)

Apart from the strong push into U.S. equities, Colas said emerging markets and precious metals are coming back into favor, with inflows of $9.1 billion and $2 billion, respectively.

”We’ve noticed a trend now for at least a year where investors use country-specific funds in lieu of regional products,” Colas said, singling out a number of those funds that have gathered more than $100 million dollars in new investments since the start of the year.

Among those are:

  • iShares FTSE China 25 Index Fund (NYSEArca: FXI)
  • iShares MSCI China Index Fund (NYSEArca: MCHI)
  • iShares MSCI Germany Index Fund (NYSEArca: EWG)
  • Market Vectors Russia ETF (NYSEArca: RSX)
  • iShares MSCI Chile Index Fund (NYSEArcaECH).

“I have no doubt that mutual fund flows will eventually turn positive, and we’ll have to keep an eye on this trend when it develops,” Colas said.

“But for now, exchange traded funds look to be the horse pulling the market’s proverbial cart.”