Below Investment-Grade Debt Funds Continue to Attract Net New Money

After six consecutive weeks of net outflows triggered by the COVID-19 pandemic, funds in Lipper’s corporate debt High Yield Funds classification (including both mutual funds and ETFs) took in net new money for the fourth consecutive week. For the fund-flows trading week ended Wednesday, April 22 high yield funds grew their coffers by $2.1 billion to bring their four-week total intake to $17.9 billion. This four-week run includes the group’s two-best weekly net inflows ever (Lipper began tracking fund flows data in 1992) during the weeks of April 15 (+$7.0 billion) and April 1 (+$6.9 billion).

The group’s record-setting net inflows for the week of April 15 were triggered by unprecedented news from the Federal Reserve. On April 9, the Fed announced that for the first time ever they would be purchasing corporate junk bonds and corporate junk bond ETFs. The Fed’s foray into the high yield space will be limited to fallen angel debt, which are companies that initially had an investment-grade credit rating but have been recently downgraded. The rebound for the asset group (from a fund-flows perspective) began in late March on the strength of the passage of the $2.2 trillion rescue package. High yield debt correlates more with common stocks than it does with other corporate debt (or government debt) because its risk profile is more equivalent to stocks. After retreating 20.0% in the first quarter, the stimulus bill has helped the S&P 500 Index appreciate 8.3% for the quarter to date while Lipper’s high yield group is up 3.1% in Q2 after retreating 12.8% in Q1.

As the chart below illustrates, the net positive flows in the high yield funds space has been relatively evenly split between mutual funds and ETFs. Of note during this four-week run has been record-setting net positive flows for a couple of high yield ETF products. The SPDR Bloomberg Barclays High Yield Bond ETF (JNK) had its two best weekly net inflows ever during the weeks of April 1 (+$1.5 billion) and April 15 (+$1.4 billion) while iShares iBoxx $ High Yield Corporate Bond ETF (HYG) had its fourth-best (+$1.4 billion) net positive flow during the fund-flows week of April 15.