Santa's Gift And State Of High-Yield Market

In early December, I penned an article entitled Santa Claus and the High Yield Market, which illustrated a market anomaly in the high-yield corporate bond market. Historically, December and January have offered the highest risk-adjusted returns in the market for high-yield corporate debt. These two months generated one-third of this market's returns in a period stretching back more than 30 years.
A table of historical returns below shows this seasonal trend:

The trend continued in December 2016 and January 2017 as the market continued to deliver strong seasonal excess returns, but where does that leave us in the high-yield bond market? This article aims to frame this market move for the Investing for Income community on Seeking Alpha in ten consumable data points.
1. The Bloomberg Barclays High-Yield Index returned 17.1% in 2016, its best return since the post-crisis market recovery in 2009.
2. If you had tried to passively replicate the market through the top two high-yield bond exchange-traded funds - the SPDR Bloomberg Barclays High Yield Bond ETF (NYSEARCA: JNK) and the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG) - you would have returned 14.4% and 13.4% respectively. These are strong returns, but still meaningfully lagged the index. The negative variance far exceeds the 40-50bp expense ratio on the funds, and is likely a function of not fully replicating some of the most distressed issuers before the recovery began in mid-February.
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