Bond investors are increasingly turning to easy-to-use, cheap and efficient exchange traded funds to get their fixed-income fix.
According to BlackRock data, fixed-income ETFs attracted 54% of all exchange traded product inflows over the first five months of the year, writes Todd Rosenbluth, S&P Capital IQ Director of ETF Research, for CNBC.
“Bond ETFs can be used to manage interest rate exposure tied to the Federal Reserve, credit quality as investors seek greater yield from lower-quality bonds and to capture global fixed-income opportunities,” Rosenbluth said.
For example, the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG), with $17 billion in assets, tries to reflect the performance of the widely monitored Barclays Aggregate Bond Index, which provides exposure to a diversified basket of U.S. Treasuries, U.S. mortgages and agency bonds, along with investment-grade corporate bonds. [Bond ETFs Bulk Up]
AGG has a 0.08% expense ratio, a 2.0% 30-day SEC yield and a 5.2 year duration.
“S&P Capital IQ believes many investors are using AGG for their core fixed income exposure and strategically increasing exposure to certain bond investment styles,” Rosenbluth said.
Additionally, investors have utilized bond ETFs to change the amount of rate risk their fixed-income portfolios were exposed to. In 2013, short-term bond funds added $36 billion in new assets, whereas long-term funds saw $8.7 billion in outflows. Over the first five months this year, short-term debt ETFs attracted $9.4 billion as well.