Despite U.S. equities market breaking new record highs and concerns about a tighter monetary policy out of the Federal Reserve, bond ETFs have experienced record inflows so far this year.
Bond ETFs have attracted almost $130 billion so far this year, surpassing the record-breaking 2016 when investors funneled almost $117 billion into fixed-income ETFs, reports Robin Wigglesworth for the Financial Times.
“It’s been a year of robust flows,” Steve Laipply, head of fixed income strategy at BlackRock’s iShares ETF business, told the Financial Times, projecting bond ETFs could globally double over the next five years to $1.5tn. “There has been accelerating institutional investor adoption of these products.”
While passive stock ETFs have continuously experienced inflows over the past decade as money is pulled from traditional and more expensive open-end mutual funds, bond ETFs have not enjoyed a similarly rapid growth rate.
There are now 322 U.S.-listed bond ETFs on the market with $539.4 billion in assets under management. To put this in perspective, there are 2,041 U.S.-listed ETFs with close to $3.3 trillion in assets under management, according to XTF data. The lgobal ETF industry recently crossed the $4 trillion marker earlier this year.
Related: How ETF Investors Can Capitalize on Rapid Growth in ETFs
Supporting the renewed interest in bond ETFs, investors are looking at alternative fixed-income strategies that may hold up during periods of higher interest rates. For example, floating-rate bond ETFs have been a popular choice, revealing concern that the Fed’s plans to tighten its monetary policy could weigh on the debt markets.
“It’s highly encouraging,” Todd Rosenbluth, director of ETF and mutual fund research at CFRA, told FT. “Even as interest rates have edged higher, investors are embracing lower-cost alternatives.”
Others have shifted away from government debt and looked in to higher-yielding corporate credit and emerging market debt as alternatives. Bond ETFs with a shorter duration have also been a popular way to limit the negative effectis of rising rates.
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