Investor Demand for High Yield Funds Spikes in September

Lipper’s High Yield Funds peer group (including both mutual funds and ETFs) has taken in almost $5.0 billion in net new money over the last two fund-flows trading weeks. This is the best two-week result for the group since mid-December 2016, when high yield funds had total net inflows of $5.8 billion. This surge has corrected a mini-slump that the peer group suffered through in August (net outflows just shy of $5.0 billion) and puts it back on track to record its first annual net inflow since 2016. To put this in perspective, high yield funds have taken in $15.7 billion in net new money for the year to date after experiencing their worst annual net outflow ever in 2018 (-$45.7 billion) and seeing money leave their coffers in five of the previous six years.

In general, high yield debt correlates more closely with stocks than it does with other taxable fixed income securities. This is due to the fact that high yield debt, also known as below investment grade debt or junk bonds, carries more risk (like stocks) than corporate investment grade debt or government issues. This correlation is illustrated in the market activity and fund flows results that we’ve seen over the last two months. The equity markets were down in August, as the Dow Jones Industrial Average, S&P 500 Index, and NASDAQ Composite Index all finished the month in the red. The equity funds (-$36.6 billion) and high yield funds (-$5.0 billion) groups both recorded their highest monthly net outflows of the year in August. Conversely, the equity markets have rebounded in September (all three indices are up more than 2.70% for the month to date) and investors have flocked back to both equity funds (+$12.8 billion) and high yield funds (+$5.0 billion).

ETFs (+$3.0 billion) took in the majority of the net new money within the peer group over the last two weeks. The largest individual net inflows on the ETF side belonged to iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and SPDR Bloomberg Barclays High Yield Bond ETF (JNK), which both took in approximately $1.2 billion in net new money. For high yield mutual funds (total net inflows of $1.9 billion for the time-period), the BlackRock High Yield Fund (+$977 million) led the way.