The BlackRock Investment Institute recently published a new paper entitled Dividend Deluge, documenting the incredible surge in flows that dividend ETFs have experienced over the past few years.

With many yield-starved investors turning to dividend stocks as a way to cope with record low interest rates, equity-income focused ETFs have gathered $62 billion since January 2010, bringing the category to an impressive $87 billion in assets at the end of June.

Dividend deluge, indeed.  But what will happen to the growing number of ETFs in this category as rates continue their journey north?  It’s no secret that many investors have been using dividend stocks as a higher paying alternative to investment grade bonds.

In fact, flows into dividend ETFs have been closely tracking flows into investment grade bond ETFs since the beginning of 2010 (see below).  When bond interest rates climb higher again, will investors bolt on dividend ETFs as rapidly as they came in?

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