Investors are taking a shine to bond exchange traded funds, throwing $100 billion into the asset class over the first three quarters of the year.
Total global ETF assets under management have reached $3.4 trillion at the end of September, compared to $3 trillion at the end of 2015, reports Thomas Hale for the Financial Times.
However, only $612 billion is invested in fixed-income ETFs, but it is still a significant 24% gain since the end of last year when $495 billion was invested.
In the U.S., where there are 1,933-listed exchange traded products with close to $2.4 trillion in assets under management, 297 U.S.-listed bond ETFs only make up $427.1 billion of the industry, according to XTF data.
SEE MORE: Bond ETFs Are Having a Great Year
The growth in fixed-income ETFs reflect an ongoing trend in investors’ habits as more gradually turn to new ways to gain exposure to the debt markets as traditional forms of trading lose traction, concerns over liquidity rise and low yields depress returns.
“In this new ecosystem, bond ETFs are becoming really central to the way fixed income operates,” Stephen Cohen, head of fixed income beta at BlackRock, told the Financial Times. “In the old days if you wanted to own a portfolio of fixed income in order to deliver returns, owning lots and lots of bonds was actually quite straightforward — you could buy into and sell out of bonds quite easily. Now we are in a world where that becomes more and more challenging.”
SEE MORE: Emerging Market Bond ETFs Attract Record Inflows
Alternatively, the easy-to-use ETF investment vehicle has grown in popularity as a go-to choice for gaining bond market exposure. Notably, investors have funneled $33 billion into investment-grade bond ETFs over the first three quarters. Emerging market bond assets have also accumulated $15 billion in inflows and attracted record inflows over the third quarter.
“What we’ve noticed is a growing trend of investors going passive in the fixed income space,” Antoine Lesne, head of SPDR ETF Strategy & Research Emea, told FT, adding that the trend was not confined to indices that are “easy to replicate”.
“There’s been a growing trend of getting exposure to UK corporate, euro corporate, high yield and emerging market debt,” Lesne added.
For more information on ETF flows, visit our ETF performance reports category.