* Investors may be giving up more than they realize
* Junk bond ETFs lose $836 million over past month
By Jessica Toonkel
NEW YORK, Nov 15 Investors are fleeing junk bond
exchange traded funds in droves this month, fearing the risk of
investing in these funds is not worth the reward, but the rush
is exposing an ETF weakness that's reducing bottom-line returns.
Unlike ordinary mutual funds, which are priced once a day at
about the exact value of their assets, ETFs trade in real time
and that means prices can get out of line with true worth of
The rush of junk investors out of ETFs, almost $1 billion
pulled in the last four weeks, is the biggest since June, when
fears about the Greek debt crisis were at a peak. That has
pushed fund prices to a discount -- investors selling now are
only get 97 or 98 cents for every dollar of assets. Making the
problem worse, many bought in at the end of 2011, when a crowd
of buyers pushed ETF prices to premiums.
For example, investors who bought BlackRock Inc's
$16.27 billion iShares iBoxx High Yield Corporate Bond ETF
on Dec. 27 2011, when investors were rushing into
high-yield bond ETFs, bought at the highest premium - 2.63
percent of fair value - according to an analysis conducted for
Reuters by IndexUniverse LLC.
If those investors sold the ETF on Nov. 13, they would have
seen investment return gains of 8.15 percent. If the ETF has
been bought and sold at fair value, that figure would have been
"So you threw away 3.07 percent of your performance by
buying in when there was peak demand and selling during peak
panic," said Dave Nadig, director of research at IndexUniverse.
"ETF investors getting out of junk bonds are getting hit harder
than those who are just getting out of junk bond mutual funds.
Over the past four weeks ending Nov. 14, investors pulled
$836 million out of high-yield exchange-traded funds, the
biggest outflows since June, according to Lipper, a division of
In the past week alone, the two biggest high-yield ETFs, the
iShares iBoxx High Yield Corporate Bond and the State Street
Global Advisors' $11.76 billion SPDR Barclays Capital High Yield
Bond ETF lost $394 million and $315 million
respectively, the biggest losses for the two firms since June,
according to Lipper.
"People are less comfortable with the amount of risk they
have and are scaling back," said Todd Rosenbluth, an S&P Capital
But ETF investors who think they are saving themselves
future pain by getting out of high-yield ETFs now may have no
clue how much they have lost by selling when everyone else is
doing the same, analysts said.
"It's a classic buyer beware situation," Nadig said.