The S&P 500 is up 2.9% this year. That is not much better than 2.5% returned by the Vanguard Total Bond Market ETF (NYSEArca: BND), the largest bond ETF and that performance by the S&P 500 lags the almost 3.3% year-to-date gain offered by the PIMCO Total Return ETF (NYSEArca: BOND).
Plenty of other bond ETFs currently look attractive compared to U.S. equities, the benefit of this year’s plunge for 10-year Treasury yields. [Exciting Leveraged Treasury ETFs]
“Thus far in 2014, rates have fallen notably and investors who stuck with longer duration and developed international products have been rewarded,” said S&P Capital IQ in a new research note.
A year ago, speculation was rampant that the Federal Reserve was close to tapering its quantitative easing program, stoking fears of higher interest rates while forcing investors out of longer duration and international bond ETFs.
“For all of 2013 on a global level, investors put $27.5 billion of fresh money into fixed income products, but $35.9 billion went to short maturity funds (3 years or less) and all other duration buckets saw $8.3 billion of outflows,” according to S&P Capital IQ.
Bond ETF inflows have come back with a vengeance this year. For example, the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) and the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) have taken almost $4.5 billion combined. IEF and TLT are not the only bond ETFs that have been on the receiving end of investors’ affection.
While some continue to doubt to the veracity of the senior bank loan ETF market, pointing to three consecutive weeks of April withdrawals totaling a scant $107.5 million, the PowerShares Senior Loan Portfolio (NYSEArca: BKLN), which S&P Capital IQ rates marketweight, has taken in almost $912.5 million this year, according to PowerShares data.
Combined, BKLN and the SPDR Blackstone/GSO Senior Loan ETF (NYSEArca: SRLN) have over $8 billion in assets under management, which is to say three-week combined outflows of less than $108 million are a barnacle on a humpback whale. [Goldman Cautious on Bank Loan ETFs]
“The decline in yields has coincided with the return of the bond ETF investor. During the first four months of 2014, $14.6 billion went into fixed income exchange traded products. Assets continued to increase for high yield products, but investment-grade and municipal bond products were among the styles that returned to popularity this year,” said S&P Capital IQ.
The research firm notes that through the end of April, the overweight-rated iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD), the second-largest U.S. bond ETF behind BND, pulled in $860 million in new assets.