ETF fund flows are usually a lagging indicator of market performance. It's only after a particular segment of the market rises does investment in that segment typically follow. That's why the news coming out of the high yield bond market in February is a bit peculiar. Despite two years of declining prices, investors began moving back into junk bonds.
According to Morningstar, investors added $4 billion to high yield funds in February, just the second time in the last 10 months that net flows were positive. High yield ETFs have raked in billions more. There could be a couple of explanations for this. The SPDR S&P 500 Trust ETF (NYSEARCA:SPY) dropped 9% in the first couple of weeks of 2016 and was down nearly 11% on the year by early February. It could be that investors moved money out of stocks and into high yield bonds as part of a broader move out of equities and into fixed income during the month (outflows of nearly $10 billion from domestic equity funds vs. a $13 billion inflow into taxable and muni bonds).
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