With investors struggling to digest the daily changes in news headlines and translate it into tangible financial decisions, markets are on a roller coaster of heightening volatility lately, selling off from all-time highs. This is especially apparent in the ETF universe, where ETF flows have been a mixed bag recently.
One example is the blended ETF flows is in the Treasury ETF space, where investors are both buying and selling ETF Treasurys. There has been a shift that is particularly noticeable in fixed income flows.
Tim Urbanowicz, director of fixed income ETF strategy at Invesco, appeared on Bloomberg to discuss fixed income investing in today’s market environment.
“I think you’re seeing a very challenging backdrop out there globally,” Urbanowicz said. “If you look here in the U.S. you have a 10-year that is off year-to-date lows, but still not by much. If you look into developed markets you have the average yield on non-US dollar sovereigns that’s back above zero, but again, not by much. And if you look at credit spreads, credit spreads are stubbornly tight. So it’s a very challenging backdrop, but with that we are seeing investors find different pockets of opportunity. One of those areas would be in corporate credit. If you look at investment grade market, what you’re seeing there is you’re still getting a nice bump over treasuries in that market. But at the same time we’re also seeing this global search for yield really reignite the bid from foreign investors into corporates. So if you look at the BulletShares Corporates from Invesco, which really gives us a nice snapshot of the yield curve incorporated, what we’re seeing is a lot of that flow is going into the short end to try to get access to that narrative, but at the same time, reduce any mark to market risk.”
Rachel Evans of Bloomberg agrees that markets are very mixed right now.
“I think Eric [Balchunas] really categorizes it correctly when he describes it as a tug-of-war. That’s very much what we’re seeing in the fixed income side and in the equity side. We’re seeing a bump among equities. I think about $26 billion already has kind of gone into those sorts of funds. But you’re really seeing it going to interesting places. You’re seeing value have a resurgence, but growth is doing quite well. You’re seeing technology stocks doing pretty well, but you’re also seeing real estate which tends to be more of a defensive play doing well. So I think there’s a real split between those that kind of like want to go back into those yield seeking more kind of sort of equity-like assets, but also those that are doing so a bit more cautiously,” said Evans.
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