Published October 09, 2012
A favorite destination for yield-starved investors in 2012 has been high-yield bond ETFs, but cash has flowed to junk bond funds and yields have been suppressed. Relatively low yields on junk bond ETFs have prompted speculation that chasing price appreciation at these levels could be hazardous to a portfolio's health.
If the performance of marquee junk bond ETFs over the past month, there might be something to the argument that these funds are showing their age. The iShares iBoxx $ High Yield Corporate Bond Fund (HYG), the largest high-yield bond ETF, is off 0.22 percent in the past month. The SPDR Barclays Capital High Yield Bond (JNK), the second-largest junk bond ETF, is up just two tenths of a percent over the same period of time.
Home to a combined $29.3 billion in assets under management, it is understandable that HYG and JNK dominate junk bond ETF headlines. However, those funds are not the entire story in this asset class and at least one high-yield bond ETF has been standing tall in recent weeks.
Over the past month, the PowerShares Senior Loan Portfolio (BKLN) is up 0.2 percent. That doesn't sound like much, but it appears so when compared to what HYG and JNK have done over the same time.
Beyond performance, BKLN boasts an impressive run of inflows. Simply put, those that think junk bond ETF inflows are dwindling or are only heading to HYG and JNK are wrong. BKLN had $583 million in million in AUM as of early July, but that number jumped to $880 million by September 24.
BKLN's AUM number has continued to grow. As of the market close on October 8, the fund crossed the $1 billion in AUM mark, according to PowerShares data. Said differently, in 10 trading days, BKLN has increased its AUM total by almost 14 percent.
BKLN's rapid asset growth is impressive as is a quick run to the $1 billion in assets mark. The fund, the first of its kind, will not celebrate its second anniversary until March 2013. Despite its youth, BKLN's success is easy to understand.
For starters, the fund is appealing to both professional and retail investors. Some experts have said trading desks have begun using BKLN in place of credit default swaps because its underlying paper is regularly traded. Retail investors prize BKLN for a 30-day SEC yield of almost 4.4 percent a monthly dividend.
Those reasons might just explain why BKLN has outperformed HYG and JNK over the past six months.
For more on high-yield bond ETFs, click here.
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