PIMCO Short-Duration, High-Yield ETF Rakes In Cash On Rate Fears

Includes: HYS, JNK
by: Tom Lydon

By John Spence & Tom Lydon

PIMCO 0-5 Year High Yield Corporate Bond Index (NYSEARCA:HYS) has seen cash fly in the door the past few months as investors hunt for junk debt ETFs that provide some protection from rising interest rates.

The PIMCO ETF has gathered net flows of $948.7 million so far this year, according to IndexUniverse data. That's a hefty inflow for a fund that currently stands at about $1.8 billion in assets under management.

In fact, HYS saw record one-day deposits of $240.1 million on Monday, Bloomberg News reports. Conversely, SPDR Barclays High Yield Bond ETF (NYSEARCA:JNK) saw a record outflow on the same day.

JNK has a modified adjusted duration of 4.15 years while HYS has an effective duration of 1.89 years.

"HYS has a lower duration than its competitors in the high-yield bond category, which means that the fund will be less affected by rising interest rates," says Morningstar analyst Timothy Strauts in a profile of the PIMCO ETF.

HYS is paying a 30-day SEC yield of 3.47%, compared with 5.06% for JNK.

The PIMCO ETF have roughly doubled in size since the start of the year, notes Chris Hempstead, director of ETF execution services at WallachBeth Capital.

"The slope is steep here," he commented on the ETF's recent growth. "We have seen this before. I wonder where it stops."

PIMCO 0-5 Year High Yield Corporate Bond Index

Click to enlarge

Full disclosure: Tom Lydon's clients own JNK.

Disclosure: I am long JNK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.