Despite the strong rally in the equities market at the start of the year, fixed-income exchange traded funds continue to attract strong inflows, especially after weaker U.S. economic data coupled with Eurozone problems weigh on riskier stocks.
Over April, $5 billion billion in new asset inflows into fixed-income ETFs helped offset the $1.2 billion lost in stock ETFs and $1 billion from commodity ETFs.
“The overwhelming view from almost everyone in my informal survey group was that investors continue to have a strong appetite for fixed income products,” Nicholas Colas, Chief Market Strategist at ConvergEx, wrote in an research note.
In the week ended May 2, taxable bond funds attracted $5.5 billion in assets, with U.S. Treasuries bringing in $1.2 billion, the third largest weekly inflow on record and largest since June 2006, reports Daniel Bases for Reuters. The renewed interest in safe-haven assets helped push the benchmark 10-year Treasury yield to 1.9%. [What to Make of Treasury ETF Strength]
“This shift from equity into fixed income signals to me a little bit of concern in the market and a short-term risk-off mentality,” Matthew Lemieux, analyst at Lipper, said in the Reuters article.
Fund providers are also taking notice of the shift in investment sentiment.
“ETF sponsors are now focused on expanding their product suites to address the two concerns they hear from their customers – the advisors, managers and retail customers that buy their products – duration risk and diversification,” Colas added.
For instance, the top five most popular bond ETFs have an average duration of 5.9 years. Generally, you want to multiply the duration by the expected change in rates to get the move up or down for a bond security. With a wider range of durations to choose from, investors will be given a chance to adjust their duration risk depending on their interest rate views. [Risk Management with Corporate Bond ETFs]
Additionally, the majority of U.S.-listed bond ETFs cover U.S. debt. In response, the industry is beginning to add international or emerging market debt to help diversify the fixed-income options.
For more information on fixed-income assets, visit our bond ETFs category.
Max Chen contributed to this article.