High-Yield ETF Rout Widens Gap With Benchmarks
The structure of credit funds at least partially exacerbated the losses and volatility.
A rush to the exits has always raised fears of a liquidity mismatch.
Photographer: Ron Antonelli/Bloomberg
Ever since the introduction of exchange-traded funds tracking the riskiest bonds, they’ve been haunted by fears of a liquidity mismatch with the underlying securities when investors stampede toward the exit. And yet, time and again, those concerns have proved to be unfounded.
During the sell-off in risk assets in December 2018, for instance, the largest ETF tracking junk bonds suffered losses but in an orderly fashion, never stumbling by more than 0.9% in a single day. Even in the past two weeks, the iShares iBoxx High Yield Corporate Bond ETF (ticker HYG) took the market volatility largely in stride. So did the Invesco Senior Loan ETF (ticker BKLN) and the VanEck Vectors High Yield Municipal Index ETF (ticker HYD), which respectively are the largest ETFs tracking the leveraged-loan market and speculative-grade munis. Sure, they declined, but never to an extent that raised eyebrows about the ETF structure itself.