Sentiment towards high yield ETFs has entirely reversed over the past month following the Federal Reserve’s pledge to purchase recently downgraded credit.

According to data from Bloomberg, high yield ETFs saw $5.2bn inflows in the US in April, the highest monthly inflows since 2015.

The story was similar for European-listed high yield ETFs which witnessed $1.3bn inflows in the same period reversing the $5.1bn outflows seen over the past two months.

The reverse in flows can be attributed to the US central bank which expanded its bond-buying remit at the start of April to include corporate debt that had recently been downgraded.

Following the Fed’s announcement investors have looked to front-run the central bank’s purchases by gaining exposure to the largest high yield ETFs on the market.

The $19.9bn iShares iBoxx High Yield Corporate Bond ETF (HYG), for example, saw record monthly inflows of $3.6bn in April.

Fed’s decision to buy ETFs throws up questions for the industry

The Fed’s scope to purchase ETFs for the first time in its history comes as it expands its balance sheet to a record $6trn and beyond in response to concerns about the long-term impact of coronavirus.

As part of the plan, the central bank will purchase debt that has been downgraded to BB-/Ba3 before 23 March, a niche area of the market known as fallen angels.

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