Fixed Income ETFs Attract $8.6B April Inflows

As the month started yields on high yield were over 6% and we are starting to see investors willing to step back in and take down that yield as a 6% coupon looks attractive as equities struggle.

Related: TED Spread & LIBOR: What Investors Should Know

Looking ahead though, this does remain a volatile environment that could be knocked off-course by an early morning tweet or soundbite as the issues such as trade, special investigations, and Middle East conflicts are market moving issues.

With that in mind, for investors looking to add yield, but temper risk we think Bank Loans are an ideal allocation. In 2018 bank loan funds have amassed $800M of inflows, which is about 6% of their start of year assets indicating strong interest.

Bank loans are an interesting asset class for an environment marked by volatility and rising rates as they have;

  • Floating coupons, benefiting from the increase in LIBOR and the potential 2 additional rate hikes this year
  • Lower correlations to equity markets than fixed rate high yield, while negatively correlated to traditional exposures like the Agg
  • More senior in the capital structure and have historically fallen less during periods of stress as measured by a rise in credit spreads

Out of any major bond segment (Agg, HY, IG Credit, EM Debt) bank loans are the only asset class up on the year.

Lastly, and reinforcing the risk tempering sentiment percolating throughout the marketplace is the over $1 billion of inflows into gold-backed ETFs in April. If we look at defensive assets, like treasuries, min volatility strategies, staples, or utilities only gold is up this year. It’s been a take the gold; leave the cannoli type of market.”

Editor’s Note: For more information on Fixed Income ETFs, visit the ETF Trends Fixed Income Channel.