Bond ETF Growth Could Surge as Institutional Investors Jump In

Institutions have been playing the exchange traded fund field through large and liquid equity offerings like the SPDR S&P 500 ETF (NYSEArca: SPY), and now these big investors are setting their sights on bond options, potentially fueling growth in a relatively overlooked segment of the ETF space.

According to Morningstar data, bond ETFs attracted $91.9 billion in net inflows over 2016, up 50% from the previous year and outpacing the rate of growth in equity ETFs, reports Gunjan Banerji for the Wall Street Journal.

The demand for debt-related ETFs continues through this year as investors funneled $34.5 billion into bond ETFs so far in 2017.

According to BlackRock iShares, the global bond ETF industry achieved its best quarter on record with $44.5 billion in inflows over Q1 2017, even with the widely anticipated Federal Reserve interest rate hike in March.

Nevertheless, bond ETF assets remain overshadowed by equity-related ETFs as growth has not matched demand for stock ETFs over the years. According to XTF data, there are 2009 U.S.-listed ETFs on the market with $2.8 trillion in assets under management. However, there are only 309 fixed-income ETFs with $472.4 billion in assets.