Investors are shifting into high-yield ETFs with a potential Fed pause on the horizon

Published Fri, Jun 9 20232:33 PM EDTUpdated Fri, Jun 9 20235:39 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

Investors are beginning to stretch for yield as the Federal Reserve's rate-hiking cycle winds down, ETF flows data suggests. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) , brought in nearly $1.2 billion in cash over the past week, according to FactSet. That made it the fifth top fund of the week by inflows, trailing only four broad equity funds. But it wasn't just HYG. The seven biggest high-yield ETFs saw inflows over the past week, according to FactSet. Investors bought into the iShares Broad USD High Yield Corporate Bond ETF (USHY) . The fund saw about $117 million in flows this past week. The interest in high-yield debt comes ahead of next week's Federal Reserve meeting. According to the CME FedWatch Tool , traders expect the central bank to hold rates steady at this meeting, though the market is split on which direction the Fed will go by its December meeting. If the Fed signals it is done hiking, market yields could fall as traders price in future cuts, which means some investors might want to buy now to lock in the higher yields. At the same time, the recent rally for stocks, led by growth sectors, shows there is some risk appetite among investors. "High yield's kind of in a sweet spot right now. It's got a really attractive yield that you haven't seen in almost two decades. … I think investors are bullish. In terms of the equity market, you're seeing a pretty strong rally this week. High yield is loaded to growth in terms of some of the smaller companies, lower-rated companies," said Komson Silapachai, vice president of research and portfolio strategy at Sage Advisory in Austin, Texas. The spread between high yield and safer debt could widen in coming months if the labor market continues to weaken, but the high-yield market appears to be of better quality than in previous economic cycles, Silapachai said. Here are some other notable ETF stats from the week: Retail funds had a solid week, with the Amplify Online Retail ETF (IBUY) and the SPDR S & P Regional ETF (XRT) each gaining about 4% through Thursday. The biggest investment grade corporate debt fund saw outflows, with the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) shedding more than $900 million. The Invesco S & P 500 Equal Weight ETF (RSP) was in the top five for inflows this week despite underperforming the S & P 500 dramatically year to date. That could be a sign investors are betting the market rally will start to broaden out.