- ETF investors have turned to more steady fixed-income assets
- iShares U.S. fixed income ETFs attracted $7 billion in net assets over February
- However, with the stock market picking up and risk aversion dissipating, fixed-income investors are shifting back into riskier debt
While the equities markets oscillates, exchange traded fund investors have turned to more steady fixed-income assets.
According to FactSet data, iShares U.S. fixed income ETFs attracted $7 billion in net assets over February while the broader industry brought in $9 billion, writes Todd Rosenbluth, S&P Global Market Intelligence Director of ETF Research, in a note.
“We continue to see increased usage of fixed income ETFs from both institutional and retail investors,” Matt Tucker, Head of Americas iShares fixed income strategy, said. “2016 flows have been marked by a strong flight to quality, with U.S. Treasuries and core aggregate funds leading the way.”
The iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) was the most popular pick last month with $1.2 billion in net inflows. The iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) attracted $1.1 billion in new inflows. Additionally, the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) saw $918 million in inflows.
Meanwhile, Vanguard, which holds a 23% share of U.S. fixed income ETF assets, added $1.2 billion, or 14% of net inflows in February. The Vanguard Intermediate-Term Corporate Bond ETF (NYSEArca: VCIT) saw $271 million in new assets.
These investment-grade debt-relate ETFs attracted heavy inflows as investors turned to safer plays in a volatile market. However, with the stock market picking up and risk aversion dissipating, fixed-income investors are shifting back into riskier debt.
Among the most popular ETF plays over the past week, the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) brought in $968.7 million, iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) saw $644.9 million in flows and iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEArca: EMB) added $504.3 million, according to ETF.com.
Investors may be attracted to the cheap valuations and wider yield premiums that these bonds offer over safe-haven government bonds after benchmark yields on 10-year Treasuries dipped back toward all-time lows. Moreover, the rebound in energy prices could have reassured investor fears of a potential defaults in the energy space. JNK has a 7.64% 30-day SEC yield and HYG shows a 8.05% 30-day SEC yield. [Junk Bond ETFs are Hot Again]
In the same vein, investors who are looking for some value in the bond market may want to take a look at emerging market debt where yields also show a widening premium over government debt. EMB has a 5.44% 30-day SEC yield. [A Bond ETF Segment That Offers Attractive Value]