2020 Could See Inflows of $1T Globally into Fixed Income Funds

2019 was a good year for fixed income funds and 2020 could see another banner performance with an additional $1 trillion of cash flowing into fixed income funds. With yields at record lows, bond prices keep on climbing, especially with a safe haven scramble to bonds amid the coronavirus outbreak.

Per a CNBC report, fixed income funds saw “$23.6 billion of inflows, according to Bank of America Global Research. If that keeps up, the year will see another $1 trillion of inflows for the $10 trillion already in global bond market funds. By contrast, equity funds took in a net $8 billion in 2019.”

“We’re seeing a rising tide lift all boats right now,” said Bill Merz, fixed income strategist at U.S. Bank Wealth Management. “There’s a bit of a rebalance trade there. But I think the underlying catalyst is just this remarkable degree of liquidity coming from the major central banks in the last few months that have kept this going.”

Core, Cost-Effective Bond Exposure

Investors are emphasizing cost just as much as performance these days and to get that core bond exposure on the cheap, here are a pair of ETFs to consider. Coming in at a 0.05% expense ratio, one fund to look at is the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG).

Fund facts:

  • AGG 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.
  • The fund generally invests at least 90% of its net assets in component securities of its underlying index and in investments that have economic characteristics that are substantially identical to the economic characteristics of the component securities of its underlying index.

Reasons to use AGG:

  • Broad exposure to U.S. investment-grade bonds
  • A low-cost easy way to diversify a portfolio using fixed income
  • Use at the core of your portfolio to seek stability and pursue income

At a 0.15% expense ratio, another fund to look at is the iShares 20+ Year Treasury Bond ETF (NasdaqGS: TLT). TLT seeks to track the investment results of the ICE U.S. Treasury 20+ Year Bond Index (the “underlying index”). The underlying index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity greater than or equal to twenty years.

Advantages of adding TLT to your portfolio:

  • Exposure to long-term U.S. Treasury bonds
  • Targeted access to a specific segment of the U.S. Treasury market
  • Use to customize your exposure to Treasuries

For more market trends, visit ETF Trends.