Invesco Junk ETF has Record Redemption Amid Europe Crisis

Investors pulled a record number of shares from Invesco Ltd.’s exchange-traded fund that buys junk bonds this week amid mounting concern that Europe’s sovereign- debt crisis will disrupt economic growth.

PowerShares Fundamental High Yield Corporate Bond Portfolio (PHB), the third-biggest ETF that buys the debt, reported redemptions of 1.6 million shares on June 5, valued at $29.5 million, according to data compiled by Bloomberg. That’s the biggest one-day outflow since the fund’s inception in November 2007.

High-yield bonds in the U.S. have lost 1.7 percent since the end of April, paring the gain for the year to 4.4 percent, Bank of America Merrill Lynch index data show. Federal Reserve Chairman Ben S. Bernanke said today the economy is at risk from Europe’s debt crisis and the prospect of fiscal tightening in the U.S. This month, investors have yanked 4 million shares from BlackRock Inc.’s $13.7 billion junk-debt ETF and 8.5 million shares from State Street Corp. (STT)’s $10.1 billion fund.

ETFs typically allow individual investors to speculate on securities without directly owning them. Unlike mutual funds, whose shares are priced once daily, ETFs are listed on exchanges and are bought and sold like stocks.

ETFs generally don’t buy securities directly when they receive inflows or sell them to meet outflow requests. Instead, an authorized participant receives cash from investors and uses it to buy securities in exchange for ETF shares. With redemption requests, the approved participant returns shares to an ETF’s fund manager and receives securities.

Junk bonds are ranked below Baa3 at Moody’s Investors Service and lower than BBB- at Standard & Poor’s.

To contact the reporter on this story: Lisa Abramowicz in New York at labramowicz@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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