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Fund investors taking on credit risk in low-rate environment

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Fund investors taking on credit risk in low-rate environment

Todd Rosenbluth is director ofexchange-traded fund and mutual fund research at S&P Global Market Intelligence.The S&P Global Market Intelligence rankings for ETFs and mutual funds, availablethrough MarketScope Advisor, are quantitatively derived and based on performance,risks, costs and a qualitative analysis of the underlying holdings.

With$2.6 billion in net inflows during the seven-day period ended July 13, taxable bondmutual funds made up for the prior's week's $1.0 billion in outflows and then some.The category's success was driven by $1.8 billion of new money for high-yield funds,according to Thomson Reuters Lipper.

Thoughthe yield on the 10-year Treasury rose modestly to 1.48% on July 13, Treasury bondscontinued to provide investors with only moderate income. As such, investors favoredthe 5.0% average yield offered by funds in the Lipper high-yield peer group overgovernment funds, despite the higher credit risk.

Accordingto Patrick Keon, research analyst with Thomson Reuters Lipper, Northern High YieldFixed Income (NHFIX) and BlackRock High Yield Bond Portfolio (BHYAX) pulled in $189.6million and $169.7 million, respectively. Other popular active mutual funds includedAB High Income Fund (AGDAX), JPMorgan High Yield Fund (OHYAX) and Lord Abbett HighYield (LHYAX), which gathered more than $100 million of new assets.

The assetmanagement industry as a whole gathered $2.6 billion of net inflows in high-yieldexchange traded funds in the latest seven-day period. IShares iBoxx $ High YieldCorporate Bond (HYG) and SPDR Barclays High Yield Corporate Bond (JNK), the twohigh-yield ETFs with the most assets, gathered $1.31 billion and $972.1 million,respectively. These index-based products are passively managed by and State Street GlobalAdvisors Funds Management.

Withinthe equity category, ETFs remained popular in mid-July. These largely passive index-basedproducts brought in $15.3 billion of new money, while largely active mutual fundshad $7.5 billion of redemptions. It was the 18th consecutive week of outflows forequity mutual funds. More than $4.5 billion that were pulled out of in the , driven by outflows tolarge-cap funds.

ISharesEdge USA Minimum Volatility (USMV) and Vanguard S&P 500 Index (VOO) were twoof the equity ETFs to gather assets. Demand has remained strong for the largestlow volatility products, after gathering $12.3 billion in the .