The breakneck pace of inflows to fixed income exchange traded funds has continued in 2015 with large institutional investors driving much of that growth.
Bond ETFs took in $32 billion globally this year through Feb. 26, reports Katy Burne for the Wall Street Journal, citing Bloomberg data.
Last month, BlackRock (NYSE: BLK), the world’s largest asset manager, highlighted the brisk pace of capital flowing into bond ETFs, noting that hrough Feb. 12, investors poured $19.6 billion into bond ETFs this year, according to iShares, helping place five bond funds on the top 10 list of ETFs for year-to-date inflows.
Last year, the Vanguard Total Bond Market ETF (NYSEArca: BND) and the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) were among the top 10 asset-gathering ETFs. [Bond ETFs Extend Record Inflows]
“More than half the $20 billion that flowed into fixed-income ETFs at BlackRock Inc. ’s iShares unit in the first eight weeks of this year came from institutions such as insurers and endowments. In some large funds, institutional money in ETFs has more than doubled in the past few years, the firm said,” reports Burne for the Journal.
That jibes with a forecast published by BlackRock last year, which in highlighting increased institutional use of ETFs, said those investors were likely to boost usage of fixed income ETFs this year. In 2014, the number of institutional investors, including pensions and endowments, using bond ETFs rose to 42% from 32% in 2013. [Institutions Increase Use of ETFs]
Inflows across the bond ETF landscape have been broad-based. Rather than scouring the universe of high-yield corporate debt for specific issues, hedge funds are increasingly turning to exchange traded funds for exposure to junk-rated corporate bonds.
Investors’ concerns have centered on ETFs tracking less-liquid sectors of the fixed-income market, such as corporate junk bonds and muni bonds. Due to increased regulations, a consequence of the Dodd-Frank Act, banks face more scrutiny on balance sheets, leverage and capital. That has sparked increased usage of ETFs for fixed-income exposure in place of derivatives. [Hedge Funds Flock to Junk Bond ETFs]
Year-to-date, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK), the two largest junk bond ETFs by assets, are two of the top 10 asset-gathering ETFs.
The number of JNK shares owned by professionals filing 13Fs jumped 20.6% during the fourth quarter to 159.7 million shares while 68 funds added new positions in the ETF compared to 40 eliminating JNK stakes, according to Whale Wisdom.
There are now 260 bond ETFs, up from 62 in 2008, according to research from Tabb Group, reports the Journal. One of the newest entrants is the actively managed SPDR DoubleLine Total Return Tactical ETF (NYSEArca: TOTL). TOTL, which debuted last week, will be managed Jeff Gundlach’s DoubleLine Capital and sub-advised by State Street Global Advisors. The ETF already has nearly $120 million in assets under management.
Of the 100 largest U.S.-listed ETFs by assets, 21 are bond funds.
SPDR Barclays High Yield Bond ETF
Tom Lydon’s clients own shares of HYG and JNK.