The recent volatility in U.S. equities was made evident by investor flights to the bond market with the latest BlackRock Global ETP Landscape report showing that fixed income products received the majority of November’s exchanged-traded product (ETP) flows.
According to report, Global ETPs saw inflows of $56.5 billion in November, which represents its best month since January with a concentration in fixed income of 33 percent or $18.7 billion. Of that amount heading into fixed income, just over $9 billion was allocated towards U.S. Treasury funds.
Within the capital allocated towards U.S. Treasury funds, short maturity funds saw inflows of $7.5 billion. In fact, short maturity funds accounted for $11.3 billion across the board for all fixed income products.
Short Duration ETF Options
With the latest BlackRock report showing a concentration in short duration funds, ETF investors can look at options like the SPDR Portfolio Short Term Corp Bd ETF (NYSEArca: SPSB), which seeks to provide investment results that correspond to the performance of the Bloomberg Barclays U.S. 1-3 Year Corporate Bond Index.
SPSB invests at least 80 percent of its total assets in securities designed to measure the performance of the short-termed U.S. corporate bond market. Ideally, shorter-term bond issues with maturities of three to four years are ideal to minimize duration exposure should the bull market enter another correction phase.
Another short-term bond ETF option is the iShares Short-Term Corporate Bond ETF (NasdaqGM: IGSB), which seeks to track the investment results of an index composed of U.S. dollar-denominated investment-grade corporate bonds with remaining maturities between one and five years. IGSB provides investors with exposure to short-term U.S. investment grade corporate bonds.
The Dow Jones Industrial Average fell over 500 points on Monday, which was highlighted by a flight to ETFs, particularly in fixed income. With the Federal Reserve expected to hike rates for a fourth and final time in 2018, the trend of more investors fleeing U.S. equities could persist, unless the central bank sounds more dovish on Wednesday.
“Yesterday’s sell-off saw a big bump in ETF activity as we seemed to get the beginning of year end positioning. We saw an increase of 30% in ETF volumes traded from Friday,” said Brian Gilman of Virtu Financial.
The big ETF story of the day was what looked to be a large model trigger selling the S&P sectors and buying fixed income.
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