Exchange traded fund flows on broker Charles Schwab’s platform show investors scratching for yield are directing cash to corporate bond and dividend ETFs.
In a call with reporters Friday, Eric Pollackov, managing director of ETF Capital Markets at Schwab, revealed that close to 38% of ETF flows on the Schwab platform were in fixed-income ETFs year-to-date, with the majority of the these assets going into long-term corporate bonds.
“The low interest rate environment is influencing investing,” Pollackov said in the call.
Additionally, $2.5 billion went into dividend strategy ETFs, notably for retirement planning, Pollackov added. About 18% of total fund inflows on the Schwab platform went into dividend strategies, or a 34% rise since 2010, and 87% of dividend asset flows found their way into U.S. domestic dividends.
Due to the uncertain outcome of the Eurozone debt crisis, investors may find stable dividend strategies in the U.S. where the labor market is improving, the housing market is stabilizing and corporate profits are strengthening, Omar Aguilar, Chief Investment Strategist of Equities at Schwab Investment Management, pointed out in the call.
Investors can “find opportunities in the yield-market that will be the best opportunity to counter the uncertainty in Europe, especially in fixed-income,” Aguilar said.
However, the fixed-income investor will not see high yields on U.S. Treasury investments, Brett Wander, Chief Investment Strategist of Fixed Income at Charles Schwab Investment Management, noted.
“U.S. Treasuries will likely stay in a tight range and bias toward rising rates than falling rates,” Wander said in the call. However, investors may notice that “corporate credits are offering attractive yields.” They “help in the diversified fixed-income portfolio that go beyond Treasury securities.”
The importance of investors using limit orders on ETF trades to protect themselves was also a theme discussed during Friday’s Schwab call.
“Market orders essentially give over the power of pricing to someone else,” Pollackov said. “We advise limit orders. It is a common theme that should be reinforced in investors.”
For more information on fixed-income ETFs, visit our bond ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.