One Junk-Bond Buyer Just Saved $600,000 With 21-Second ETF Trade

(Bloomberg) -- It could be the quickest return on an investment this year.

An investor looks to have saved hundreds of thousands of dollars on Thursday by switching from one exchange-traded fund focused on junk bonds, to a cheaper ETF with a similar strategy. All told, the transactions took 21 seconds, and could reduce the trader’s investment bill by about $600,000.

More than $350 million worth of shares in State Street Corp.’s SPDR Bloomberg Barclays High Yield Bond ETF, or JNK, hit the tape in two blocks at 12:46 p.m. in New York, data compiled by Bloomberg show. At the same time, more than $331 million of BlackRock Inc.’s iShares Broad USD High Yield Corporate Bond ETF -- a cheaper fund -- traded in another two chunks.

“Fee compression is a real thing,” said Mohit Bajaj, director of ETFs at WallachBeth Capital, which highlighted the trade in a client note. Switching to a lower-cost product “can definitely amount to a significant dollar amount -- especially if this fund plans to be part of a core allocation for the investor,” he said.

It’s another sign of how cost conscious investors have become amid a raging ETF fee war that’s seen one fund go so far as to temporarily offer to pay buyers to invest. Junk bonds have been a battle ground before; BlackRock’s USHY undercut a high-yield ETF run by Deutsche Bank AG’s asset management arm when is started in October 2017, only for Deutsche to lower its price a few days later.

BlackRock’s USHY charges roughly half what investors in JNK must pay, asking $2.20 for every $1,000 invested versus JNK’s $4 fee. State Street has, however, announced plans to set a new price floor for high-yield ETFs, just not with JNK. It plans to lower the cost of CJNK -- currently the SPDR ICE BofAML Crossover Corporate Bond ETF -- to just $1.50 and shift its strategy to junk debt.

Shares of USHY are up 5.9 percent this year, while JNK has risen around 6.7 percent. JNK tracks the Bloomberg Barclays High Yield Very Liquid Bond Index, while USHY follows the BofA Merrill Lynch U.S. High Yield Contrained Index.

“Every basis point counts,” said James Pillow, managing director at Moors & Cabot Inc. “Adding essentially the same requisite high-yield exposure at a discount to JNK and HYG makes sense.”

To contact the reporter on this story: Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Rachel Evans, Rita Nazareth

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