Bond ETFs Dominate October Inflows

As had been previously forecast, October was a month to remember for fixed income exchange traded funds as investors allocated a record $17.7 billion to bond ETFs. That easily topped the previous record of $17 billion set in February.

“Consistent with returns, investors largely honed in on bond ETFs with inflows amounting to 6% of assets. After pulling money from equity ETFs to start the month, investors began to put capital to work as the month came to a close. Even with the choppiness, corporate fundamentals remain strong with 75% of US large caps beating their earnings estimates. Commodities experienced another month of outflows with year-to-date totals of over $1.2 billion out,” said State Street Vice President and Head of Research Dave Mazza in a new research note.

The SPDR Gold Shares (NYSEArca: GLD), the world’s largest gold ETF, accounted for the bulk of commodities ETF last month, bleeding over $1.1 billion in assets as holdings of bullion in the ETF dwindled to six-year lows. [October was Mean to Gold ETFs]

The tenth month of the year was far more kind to fixed income ETFs as big-name funds such as the iShares 1-3 Year Treasury Bond ETF (NYSEArca: SHY), iShares Short Treasury Bond ETF (NYSE: SHV) and the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) were among the top asset-gathering ETFs.

In the wake of Bill Gross’ departure from PIMCO, the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) and the Vanguard Total Bond Market ETF (NYSEArca: BND) the two primary passively managed rivals to the PIMCO Total Return ETF (NYSEArca: BOND) Gross previously managed, were also prodigious asset gathers. [Buffers With Bond ETFs]

“As noted, fixed income was the big winner in October. However, as seen with the rotation in equity sectors, it was far from cut and dry across bond markets. The risk-off tone to markets drove Treasury yields to further 2014 lows boosting interest in government and aggregate funds. In fact, government funds jumped by over 20% and have grown 37% this year. Corporate bonds were not left out of the party with close to $2.8 billion of inflows,” notes Mazza.

However, Treasury yields have recently ticked up, rising 13.4% since Oct. 15. If that move continues, money could flow out of some this top asset-gathering ETFs.

“Sector-wise, flows were consistent with the rotation often seen when markets are driven by technicals as opposed to fundamentals. Tons of money moved into consumer staples ETFs, while money moved away from consumer discretionary ETFs. Also on the losing end of the spectrum were financials and materials. Interestingly, energy was a winner even as oil suffered on the month. Real Estate continues to be an area of investor interest,” said Mazza.