Fixed Income ETFs Took In $27B in Inflows During April

The Federal Reserve’s move to shore up the corporate bond market was a magnet for exchange-traded fund (ETF) investors as $2.7 billion in inflows were seen in corporate bond funds during the month of April.

“The corporate bond market turned on a dime in April as investors saw the Fed’s decision to use corporate bond ETFs as an opportunity to front-run the buying by the central bank,” said Ben Johnson, director of passive funds research at Morningstar, the data provider.

The Fed’s move was also a boon for high yield ETFs, which saw funds like BlackRock’s HYG and State Street’s JNK bring in $3.8bn and $1.5bn respectively.

“Investor sentiment towards high-yield bonds turned positive very quickly as soon as the Fed announced it would use ETFs,” said Rory Tobin, global head of ETFs at State Street Global Advisors.

Investors can also use ETFs to get fixed income exposure without owning the actual bonds themselves. Here are a pair of investment-grade corporate bond options:

  • Vanguard Short-Term Corporate Bond ETF (NASDAQ: VCSH): VCSH tracks the performance of a market-weighted corporate bond index with a short-term dollar-weighted average maturity–the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index. VCSH debt holdings mirror those found within the index, so U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by the industrial, utility, and financial companies comprise the debt portfolio. Furthermore, in order to curb volatility in the bond markets, maturities are relatively short-duration issues–between 1 and 5 years until maturity.
  • SPDR Portfolio Short Term Corp Bd ETF (NYSEArca: SPSB): SPSB seeks to provide investment results that correlate with the Bloomberg Barclays U.S. 1-3 Year Corporate Bond Index. Once again, O’Leary would benefit from the reduced exposure to volatility with SPSB’s investment in shorter-duration debt with maturities less than three years. In addition, SBSP minimizes credit risk by constructing a debt portfolio that contains only investment-grade bonds with companies that are less likely to default.

Investors looking to get in on the corporate bond action, they can consider the Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB). GIGB seeks to provide investment results that closely correspond to the performance of the FTSE Goldman Sachs Investment Grade Corporate Bond Index.

The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index. The index is a rules-based index that is designed to measure the performance of investment-grade, corporate bonds denominated in U.S. dollars that meet certain liquidity and fundamental screening criteria.

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