U.S. equities may have taken a hit as a result of trade wars the past couple of weeks, but it’s certainly helped bond funds rack up some investor capital. It’s not something happening just recently as flows into fixed income exchange-traded funds (ETFs) have been constant since the start of 2019.
According to the latest Morningstar Direct Fund Flows Commentary, taxable-bond funds saw an influx of $42.5 billion during the month of April, which represented the second-best month over the past three years and the best since January 2018. What’s driving this demand? According to the report, an aging investor population could be why.
“Many attribute these flow trends to demographics as aging baby boomers cut their equity holdings in favor of more-conservative bond funds,” the report said.
Specifically within the fixed income space, the majority of the capital went to intermediate-term bond funds. However, there was another interesting statistic to note.
“The bulk of taxable-bond flows went to intermediate-term bond funds, but there was an interesting bifurcation in April as the old intermediate-term bond Morningstar Category was retired and two new related Morningstar Categories were introduced: intermediate core bond and intermediate core-plus bond,” the report noted.
This move also translated into a preference for investment-grade debt.
“As you might guess from the name, intermediate core bond funds tend to invest in investment-grade bonds and are conventional in their approach,” the report said. “Funds in the intermediate core-plus bond category tend to have more-flexible mandates and take on more credit risk. In April, intermediate core bond flows were much greater with $20.5 billion in inflows versus $8.1 billion for core-plus.”
Here are 5 Fixed Income ETFs With Biggest 1-Month Fund Flows as of May 20, 2019, according to data from XTF.com.
1. iShares 20+ Year Treasure Bond ETF (NasdaqGM: TLT) – $1.87 billion: seeks to track the investment results of the ICE U.S. Treasury 20+ Year Bond Index (the “underlying index”). The fund generally invests at least 90% of its assets in the bonds of the underlying index and at least 95% of its assets in U.S. government bonds. The underlying index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity greater than twenty years.
2. iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) – $999.83 million: seeks to track the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index. The index measures the performance of the total U.S. investment-grade bond market.
3. Vanguard Total Bond Market ETF (NasdaqGM: BND) – $728.94 million: seeks the performance of Bloomberg Barclays U.S. Aggregate Float Adjusted Index. Bloomberg Barclays U.S. Aggregate Float Adjusted Index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States-including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities-all with maturities of more than 1 year. All of its investments will be selected through the sampling process, and at least 80% of its assets will be invested in bonds held in the index.
4. Vanguard Intermediate-Term Corporate Bond ETF (NasdaqGM: VCIT) – $658.64 million: seeks to track the performance of a market-weighted corporate bond index with an intermediate-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index. This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between 5 and 10 years. Under normal circumstances, at least 80 percent of the fund’s assets will be invested in bonds included in the index.
5. iShares U.S. Treasury Bond ETF (BATS: GOVT) – $562.38 million: seeks to track the investment results of the ICE U.S. Treasury Core Bond Index. The underlying measures the performance of public obligations of the U.S. Treasury that have a remaining maturity greater than one year and less than or equal to thirty years.
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