Holding 23% of the $1.2T market, hedge funds - notable for their use of leverage - have amassed their greatest share of the U.S. junk bond market since 2008, reports Bloomberg. They held 18% of the market last year. The gain has come as the proportion held by mutual funds and ETFs (HYG, JNK) has declined about 9%, while that of closed-end funds - which also use leverage - has increased.
"In theory, having a more diverse group of investors is a good thing and enhances liquidity because there’s more of a chance that one group is buying as one group is selling,” says junk-bond giant Martin Fridson. “But it’s hard to make the case that it’s going to help stabilize the markets when bonds start to really sell off.”