The S&P 500 and the Dow Jones Industrial gained 3.8% and 3.5%, respectively, last month, but inflows to exchange traded funds indicate October 2014 can make a claim to being the month of the fixed income ETF.
Even without numbers from Friday, it is clear investors put plenty of new money to work with bond ETFs last month. As of Oct. 30, inflows to bond ETFs in the tenth month of the year totaled $17.4 billion, topping the previous record of $17 billion set in February. That brings the year-to-date inflows total to bond ETFs to $47 billion, just $200 million shy of the previous January through October record set in 2012, according to BlackRock data.
This year’s substantial decline in Treasury yields has, predictably, been a boon for an array of ETFs with varying degrees of exposure to the yield curve. To start the fourth quarter, six of the top-10 asset-gathering are bond ETFs. Three are pure play Treasury ETFs – 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). [Growing Bond ETFs]
The US fixed income ETF industry is on track to hit $300 billion in assets under management for the first time. As of October 29th, the industry is at $294.8 billion, according to BlackRock. Since 2008, the fixed income corner of the U.S. ETF industry has grown nearly fivefold.
“Despite significant growth over the last decade, the ETF market remains small when compared to the cash bond and mutual fund markets. However, we believe assets in fixed income ETFs could reach $2 trillion globally over the next decade,” said BlackRock last month. [Inflows to Bond ETFs Surge]
The impact of institutional money on corporate bond ETFs is noticeable as well. The iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG), the largest junk bond ETF, is also among the top-10 asset-gathering this quarter with $1.6 billion of inflows.
Investors have been snatching up speculative-grade, high-yield bond ETFs on the cheap after the sell-off pushed spreads over benchmark Treasuries close to historical averages.
Institutional investors have also been stepping back into other popular corporate bond ETFs this quarter. The iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) has added almost $643 million in new assets while the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) and the SPDR Barclays Short Term High Yield Bond ETF (NYSEArca: SJNK) have added a combined $916 million this quarter. [Junk Bond ETFs in Style Again]
Chart Courtesy: BlackRock
Tom Lydon’s clients own shares of HYG, JNK and LQD.