There are plenty of inverse
on the market today. Maybe too many in the eyes of those that
enjoy critiquing these bearish funds. There are even inverse ETFs
for the Australian dollar and Mexican stocks, but for junk bonds?
Actually, the ProShares Short High Yield (NYSE:
) has been around for over two years. In that time, the often
overlooked SJB has had to deal with some bad timing because
dwindling interest rates have helped investors embrace junk bond
ETFs such as the iShares iBoxx $ High Yield Corporate Bond Fund
) and the SPDR Barclays Capital High Yield Bond (NYSE:
The month of May could be a sign that investors are changing
their attitudes toward HYG and JNK, the two largest high-yield
bond ETFs by assets, and that could mean SJB is just starting its
15 minutes of fame.
As investors shift to bond funds with shorter duration, JNK
has seen second-quarter outflows of over $1.2 billion while
HYG lost $324.3 million as of May 30
SJB told a different story in the month of May when it raked
in almost $6.2 million in new assets. That may not sound like
much, but consider that the ETF had just $45.3 million in assets
at the end of the first quarter and $6.2 million in one month is
a tidy haul.
Volume numbers indicate traders are finding out
about/remembering SJB. Last Friday, the ETF printed quadruple its
average daily turnover. On Monday, that number jumped to 14 times
the usual volume. On Tuesday, SJB topped its average volume
number less than two hours into the trading day.
Some traders are looking to establish bearish high-yield debt
positions do so by shorting shares of JNK directly because that
ETF has historically not tracked its underlying index as well as
HYG does. SJB offers an unleveraged alternative to that
SJB attempts to deliver a daily, inverse performance that
corresponds to the Markit iBoxx $ Liquid High Yield Index and
does so through swaps
issued by two major banks
. That is HYG's underlying index. In other words, if all goes
according to plan, HYG falls one percent on a particular and SJB
rises by one percent on that same day.
Those clinging to the notion that the recent struggles for HYG
and JNK are no more than a short-term blip probably do not like
volume and inflow data pertaining to SJB. And they certainly will
not enjoy the fact that even with Tuesday's 1.4 percent loss, SJB
is still up over three percent in the past month.
With an annual expense ratio of 0.95 percent, SJB is a pricey
long-term hold, but if money continues to flow out of HYG and
other big junk bond ETFs, SJB is worth the price of admission as
a short-term trade.
For more on ETFs, click
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