This Junk Bond ETF Is Packing On The Assets

We'll take a leap of faith here and assume that investors not living in caves have heard something about the chaos going on in the high-yield bond market. From Dec. 4 through Dec. 11, the SPDR Barclays High Yield Bond ETF JNK, the second-largest high-yield corporate bond exchange traded fund, bled over $1 billion in assets. Only the SPDR S&P 500 ETF SPY lost more assets over that period.

In a year in which energy issuers are once again challenged and CCC-rated (or lower) debt has become increasingly risky and high-yield bond market participants are becoming increasingly skittish about defaults by energy issuers, it probably is not surprising that junk bond market volatility is once again on the rise.

As Benzinga reported last week, the iShares iBoxx $ High Yield Corp Bond ETF HYG, the largest junk bond ETF by assets, traded $2 billion in the secondary market last Tuesday. Last Friday, dollar volume in HYG surged past $4 billion, making the ETF one of the day's most heavily traded securities. 

In other words, these are the days for the ProShares Short High Yield ETF SJB. Inverse though not leveraged, SJB attempts to deliver the daily inverse performance of the Markit iBoxx $ Liquid High Yield Index. That is the same index tracked by HYG.

Among junk bond ETFs, SJB does not get much attention until that asset starts providing investors with cause for concern, as is currently happening.

“A 4.5% 2016 high yield default rate equates to $66 billion of defaults and would be the fourth highest default total since 2000. This would be close to the $78 billion amassed in 2001 but well below the record $119 billion posted in 2009,” said Fitch Ratings in a note posted by Amey Stone of Barron’s.

Here is the tale of the tape illustrating SJB's popularity. Year-to-date, the inverse junk bond ETF has taken in nearly $130 million in new assets, $51.4 million of have arrived in the current quarter and more than $13 million of which raced into the ETF in just the past week. Those are not massive numbers, but consider this: According to issuer data, SJB had just $152.5 million in assets under management at the end of the third quarter, meaning a significant chunk of that AUM total has flowed into the ETF this year. 

Not surprisingly, volume has been surging in SJB as highlighted by last Friday's showing when turnover in the ETF was nearly quadruple the trailing 90-day average. However, it should be noted SJB is not perfect. The ETF is up 3.9 percent over the past month while HYG is lower by nearly 4.5 percent over the same period.