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Rating:Regs Cause Investors to Junk CDs for Junk ETFs Not Rated 0.0 Email Routing List Email & Route  Print Print
Wednesday, September 19, 2012

Regs Cause Investors to Junk CDs for Junk ETFs

News summary by MFWire's editors

Regulatory changes are sometimes good news. Just ask some sponsors of junk ETFs. Not that the ETFs are junk — they are actually very good — we mean ETFs that invest in junk.

Bloomberg reports that investors are junking credit default swap (CDS) holdings and exchanging them for junk ETFs.

Says Will Rhode, Tabb Group's director of fixed income:
Product innovation is often the answer to regulatory change and I don't think it's any coincidence that we’ve seen this explosion of interest in fixed-income ETFs just at the point at which CDS as a product and asset class comes under pressure."
Indeed, Bloomberg's data shows that the corporate securities holdings of junk ETFs have roughly doubled in the past year.

The five-largest junk ETFs now hold some $31.4 billion of AUM. Meanwhile, "the net amount of protection bought or sold on the debt using the two current credit-default swaps indexes declined 3 percent to $35 billion," according to the report.

The article projects that at this year's the current 5.2 percent monthly growth pace, these ETFs will reach $36.5 billion of AUM come December 31. 

Edited by: HFD

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