Outliers are making a comeback in an economy that is rewarding investors for short-term date fixed income ETFs like the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) which has seen $1.3 billion rush into it year-to-date. Here are three reasons why.
$1.3 Billion Flows Into $BIL ETF In 2018
The ability to generate returns in short-dated fixed income ETFs has increased. As a result, money has been flowing into short term treasuries and cash type products to gain interest from investors who are hedging against market risk.
“BIL’s newfound appeal may be linked to its dividend yield, which has jumped to its highest level since 2008 amid heavy supply and continued gradual tightening anticipated from the Federal Reserve,” reports Bloomberg.
SPDR Blmbg Barclays 1-3 Mth T-Bill ETF (BIL)
The SPDR® Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index. Despite how conservative BIL is, it has seen a 0.21% return YTD and a yield of 0.75%.
It has seen $599.31 million in flows over the course of the month, which is 44% of the total flows YTD.
Year to date, BIL has seen $1,394.8 billion attracted in new investor interest.
Market risk has caused investors to jump ship on equity ETFs like SPDR S&P 500 ETF Trust (SPY) which has seen $22.8 billion in outflows, iShares MSCI EAFE ETF (EFA) has seen $6.4 billion in outflows, and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has seen $5.71 billion in outflows.
Here are three reasons why BIL has attracted so much attention.
1. Inflation From Interest Rate Hikes
As the Federal Reserve continues to tighten policy, the ability to generate returns in short-dated fixed income ETFs has increased. As a result, money has been flowing into short term treasuries and cash type products to gain interest from investors.
The median forecast remains for another two rate hikes this year, but a growing number of policymakers foresee three being required to prevent the economy from overheating.
SPDR Blmbg Barclays 1-3 Mth T-Bill ETF (BIL) is less exposed to fluctuations in interest rates than longer duration securities and thus a more secure investment.
As expected, the Federal Reserve raised the Fed Funds target a quarter point to its new range of 1.50% to 1.75%. As risk increases along with time, these short duration ETFs are safer than putting money into a volatile market.
2. FAAANG Has Seen Hit After Hit
The FAANG combo of Facebook Inc. (NASDAQ: FB), Amazon.com Inc. (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), Netflix, Inc. (NASDAQ: NFLX) and Google parent Alphabet Inc. (NASDAQ: GOOGL) is an acronym for five high-performing technology stocks in the U.S. equity markets have all been off to a rough quarter.
With the continual attacks on Amazon by Trump, the Facebook Cambridge Analytica scandal, and reports that Tesla may not make production goals, it’s no surprise that other FAANG members have dropped.
While internet stocks were all the rage, with all the drama investors are moving their money to safer ground where they can be sure to get dividends.
Related: Cash Runs Into This Conservative ETF
3. Trump’s Trade Wars With China
Beijing responded to Trump’s bump on steel and aluminum tariffs on Monday by imposing tariffs on $3 billion of US imports. The tariffs apply to 128 products, ranging from pork and meat to steep pipes. Trump plans to place tariffs on about $50 billion more of Chinese goods.
“China is not afraid of a trade war,” the vice minister of finance, Zhu Guangyao, said at a news conference to discuss possible countermeasures. Many believe that China could handle a trade war better than the U.S. because of the nature of their economy and government.
“The latest U.S. measures against China carry a sense of containment, which purportedly is commonplace among U.S. politicians,” said an editorial in Global Times, a nationalist state-run tabloid. “But they have overlooked the fact that China has grown to be another economic center of the world.”
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