High-Yield Jitters Lead Some Advisers to Sell ETFs

Patrick R. McDowell, CFP®, AIF® was quoted in a Wall Street Journal article by Daisy Maxey discussing ETFs.

Some financial advisers have been trimming their clients’ exposure to high-yield bond exchange-traded funds or cutting it altogether in recent months. They are worried that an interest-rate rise could trigger a rush for the exits that might exacerbate current liquidity issues in the market for below-investment-grade debt…

Patrick McDowell, a financial planner with Arbor Wealth Management in Miramar Beach, Fla., also began trimming his clients’ high-yield ETF exposure over the last few months. He is concerned that the “hot money” that has flowed into high-yield ETFs in a desperate search for yield will flow out “at the first sight of a rate hike,” he says.

“I do think there’s going to be some gapping down [of the share prices] of those high-yield funds,” says Mr. McDowell, whose firm manages $130 million. “We’ll reduce it so it won’t be devastated if there’s a rush to the exits. We might stay in a very small allocation for the very foreseeable future.”

The firm is redeploying the money to other areas of fixed income and boosting its cash allocation, he says…