In 2011, U.S. fixed income exchange traded fund assets were around $12 billion, up 43% from the past year, according to Investor Economics. Canadian ETFs garnered $7.9 billion in new assets for the same time period, with $3.3 billion into fixed income, solidifying the trend across borders.
“There’s definitely been a surge in ETF assets,” says Sandeep Gosal, senior analyst, Investor Economics. “During the market downturn of 2008, we started to see a lot of money going into money market funds. But as yields started to drop closer to zero, you started to see an increase towards fixed income funds.”
ETF giant iShares manages the majority of fund assets in Canada and reported that around 40% of new net asset inflows went into fixed income, reports Doug Watt for Advisor CA. [Bond ETF Ideas for Higher Yields]
Fixed income ETFs have become a popular investment tool because of their cost efficiency and the constant search for yield. [Traders Migrating to Sector, Commodity ETFs]
As of the end of 2010, fixed income ETFs had an asset-weighted MER of 31 basis points, according to Investor Economics. By comparison, actively managed fixed income mutual funds had an average asset-weighted MER of 138 basis points, which includes a trailer fee. Stripping out the trailer, the MER averages 74 basis points, reports Watt.
The easy access of an ETF is another attraction to these fixed income tools. Most investors prefer an ETF or mutual fund to a direct investment into a single bond. [High Yield Bond Investors Have More ETF Options]
“You could get a handful of bonds or you could buy an ETF that gives you very broad diversified access to the whole category—depending on the segment you’re buying you’re talking about hundreds of securities. So this makes it easy and efficient to trade fixed income,” Mary Anne Wiley, managing director and head of iShares for BlackRock Canada said.
Since investors need a bond investment in their portfolios, during a high or low yield environment, fixed income ETFs will continue their growth trend. The steady income stream, instant diversification, cost efficiency and simplicity are traits that are appealing no matter what country an investor is in.
Tisha Guerrero contributed to this article.