The total assets in high yield ETFs increase by 58% throughout the year, and market trading volumes increased by 92% year-over-year. Notice that during May and November high yield volumes spiked. These increases in volume accompanied periods of high yield redemptions. Getting into an investment is just as important as getting out, and liquidity increased during these periods of redemptions. Emerging market debt and investment grade corporate bond fund volume also greatly increased as the demand picked up in both areas.
Overall, 2012 was a year in which investors tapped into the full array of fixed income ETFs to execute their investment views – be it the hunt for yield, a desire for diversification or as a shelter from rising tax rates. In 2013 we expect investors will be focused on implications of taxes, adding yield and looking for ways to enhance liquidity. All of these trends point to the increased use of fixed income ETFs.
Karen Schenone is a fixed income strategist at BlackRock Financial Management.
1: As measured by the change in option adjusted spread from 12/31/2011 to 11/30/2012 on the Barclays US Corporate Bond Index
2: As measured by the total returns on the Markit iBoxx $ Investment Grade Corporate Bond Index from 12/31/2011 to 11/30/2012
3: As measured by the change in option adjusted spread from 12/31/2011 to 11/30/2012 on the Barclays US High Yield Bond Index
4: Based on USD emerging market government debt yielding 1% more than similar duration corporate bonds and 2.5% more than US Treasuries as of 11/30/12 using yield to maturity and option adjusted spread for the JP Morgan EMBI Global Core index’s option adjusted spread over US Treasuries. Looking at data from 11/30/2009 to 11/30/2012, standard deviations of total returns on emerging market debt have been lower than emerging market equities – 7% for USD debt and 15% for local currency debt versus 22% for MCSI EM index.