Refinitiv Lipper Chart of the Week: Fund Investors Continue to Flock to Below Investment-Grade Corporate Debt

Funds in Refinitiv Lipper’s Corporate Debt-High Yield group had net positive flows of $1.5 billion for the fund-flows week ended Wednesday, August 12. This was the sixth consecutive weekly net inflow for the group, and it comes on the heels of a $5.6 billion net outflow to start the third quarter, its fourth worst weekly net outflow ever (Refinitiv Lipper began tracking high yield fund flows data in 1992). After suffering steep net negative flows in Q1 (-$14.2 billion) as investors reacted to COVID-19, the group has rallied with its best quarterly net inflow ever in Q2 (+$41.5 billion). Its net intake of $14.1 billion for Q3 to date has the potential to be its second-best quarterly result.

The performance from the high yield funds group has mirrored that of its fund flows activity for the year to date. After taking a huge coronavirus induced loss in Q1 (-12.8%), the group has come roaring back. Its first quarter loss was among the worst of the fixed income peer groups as the riskier asset classes (below investment-grade corporate debt, emerging markets debt, and bank loans) were the hardest hit by COVID-19. The group has regained almost all its Q1 losses since then and is now down just 0.5% for the year. As the names implies, below investment-grade debt carries much more risk than other fixed income asset groups (investment-grade debt, governments, Treasuries). Due to this, the performance of the high yield funds group tends to correlate more with stocks than the other types of fixed income funds. The extremes of this year have accentuated this axiom as the returns for the S&P 500 Index have followed the same path as junk bond funds—a steep loss in Q1 (-20.0%) followed by a robust bounce afterwards (+30.8% since the end of Q1).

Since the end of the first quarter, the majority of the net inflows for high yield funds belong to the mutual funds (+$33.8 billion) in the peer group, while ETFs have contributed $21.8 billion to the total net positive flows. Although, the largest individual net positive flows over this time period belong to an ETF, as the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has taken in $13.7 billion of net new money since the end of March. Three of the next four largest net inflows did belong to mutual funds, as BlackRock High Yield Bond Portfolio, PGIM High Yield Fund, SPDR Bloomberg Barclays High Yield Bond ETF (JNK), and PIMCO High Yield Fund had net positive flows of $7.7 billion, $6.1 billion, $3.6 billion, and $3.0 billion, respectively.