Displaying items by tag: ETFs

Wednesday, 04 October 2023 05:27

Retail Investors Buying Fixed Income ETFs on the Dip

Despite a down Q3, retail investors continue piling into fixed income ETFs, both long and short-duration. They don’t seem too fazed by the recent hawkishness from the Fed or recent calls for continued strength in yields. 

Last week, inflows into the most popular Treasury ETF - the iShares 20+ Year Treasury Bond ETF (TLT) reached its highest levels since March 2020. In Q3, TLT was down 13%. This turned a small yearly gain into a more than 10% decline. Despite this performance, TLT has had $4 billion of inflows in Q3 and has seen short interest decline as well. 

Clearly, retail investors have a contrarian bent as many strategists are calling for further weakness in bonds, and Fed fund futures markets increased their odds of further hikes while decreasing odds of cuts in 2024. 

Some of the inflows into fixed income may be due to concerns about equities and economic growth given recent soft labor and consumption data over the last few weeks. THerefore, they may be looking to take advantage of the highest yields in decades and the potential for price appreciation in the event of a recession or further cooling of inflation. 

Finsum: Fixed income ETFs are seeing continued inflows despite poor performance in Q3. Here are why retail investors may be buying the dip.


Published in Wealth Management

Equity and fixed income markets were battered following the September FOMC meeting where the committee left rates unchanged but the committee members’ dot plots for the future trajectory of monetary policy and Chair Powell’s press conference had a decidedly hawkish tilt. 


The message was that another rate hike is likely before year end and that rates are likely to stay elevated for longer. Thus, Fed futures markets reduced the odds of rate cuts in 2024, leading to pain for the long-end of the fixed income complex. In contrast, the short-end of the curve saw major inflows as investors look to shield their portfolio from volatility and take advantage of high rates. 


Following the Fed meeting, there was $25.3 million of inflows into the iShares Treasury Floating Rate Bond ETF which was about 40% of the total inflows in the previous month. This marks an acceleration of a trend which began last quarter of outflows from longer-term Treasury ETFs and inflows into short-duration Treasury ETFs. 


Supporting this notion is the uncertainty over the economy and monetary policy as this tends to lead to volatility for long-duration assets. Additionally, the flatness of the yield curve means that there isn’t sufficient compensation for the additional duration risk.  

Finsum: Most of the fixed income complex suffered losses following the hawkish FOMC meeting, but one exception was short-duration Treasury ETFs. 


Published in Wealth Management
Sunday, 10 September 2023 06:14

Expect Fixed Income ETF Momentum to Continue

Fixed income markets have faced a major headwind over the last 21 months given the Federal Reserve’s aggressive rate hikes. Regardless, money poured into fixed income ETFs at a record pace even outpacing equity ETFs for the first time in history. Investors were willing to overlook poor, near-term performance due to attractive yields and a shaky economic outlook.


Now, this trend could accelerate further given that the Fed seems to be in the final innings of its tightening campaign, while concerns about valuation in equities linger. Therefore, many believe that the growth of fixed income ETFs relative to equity ETFs is not a blip, but the start of a multiyear trend. And, asset managers are responding with a bevy of new fixed income ETF launches.


Overall, inflows to fixed income ETFs are up nearly 10% compared to last year. Many are eager to lock in these elevated yields especially in areas with lower risk like Treasuries. Of course, the major challenge for fixed income investors is assessing if a pivot in policy will arrive imminently or are we due for a period of ‘higher for longer’. In the latter scenario, short-duration bonds will outperform, while long-duration will struggle. 

Finsum: Fixed income ETFs are seeing a surge in new issuances and inflows. Find out why many expect this trend to continue over the next few years.


Published in Wealth Management
Tuesday, 05 September 2023 04:28

2 High Yield Fixed Income ETFs to Consider

Bonds tend to go down for two reasons - an increase in default risk and rising interest rates. This supports the idea that current weakness in bonds is primarily due to the increase in rates as the default rate remains quite low.


This combination of high rates and low defaults is the ideal environment for high yield fixed income. Investors can take advantage of elevated yields. As long as the economy stays resilient, the default risk will remain low. If the economy starts to weaken, the default risk will likely start ticking higher, but this would also prompt a loosening of Fed policy which would be a positive catalyst for fixed income. 


For Vettafi, Todd Rosenbluth shares 3 high yield fixed income ETFs that are worth considering. The iShares $ iBoxx High Yield Corporate Bond ETF (HYG) is the largest and most well-known. It pays a 5.7% yield and is composed mostly of B and BB-rated bonds. 


For investors who want more safety in terms of credit quality, the VanEck Fallen Angel High Yield Bond ETF (ANGL) pays a 5.0% yield and is composed of higher-quality bonds rated above BB. Rosenbluth points out that ANGL has seen particularly strong inflows in recent weeks. 

Finsum: High yield fixed income is generating interest among investors. Not surprising given elevated yields even despite low default rates. 


Published in Wealth Management

For Advisors’ Edge, Maddie Johnson discusses why fixed income ETFs have experienced strong growth in recent years, and why it should continue in the coming years. ETFs have been around for more than 30 years but have become ubiquitous in the last couple of decades.

Interestingly, the trend began with passive equity ETFs taking market share away from equity mutual funds due to offering lower costs and better returns over longer time periods. In the fixed income world, change was much slower but now we are starting to see fixed income ETFs outpace equity ETFs in terms of inflows. A major factor is that there are more options when it comes to actively managed ETFs. Additionally, investors seem to be favoring fixed income given an uncertain market environment and attractive yields. 

In the first half of the year, fixed income ETFs had inflows of $160.1 billion which dwarfed the $52.8 billion of inflows in fixed income ETFs. A major recipient of inflows have been short-duration bond funds which offer yield close to 5% in many cases. 

If the Fed does indicate that it’s ready to hit the ‘pause’ button rate hikes or actually start cutting then look for long-duration funds to start outperforming as investors look to lock in these higher levels of yield. 

Finsum: Fixed income ETFs have seen the majority of inflows in 2023 due to an uncertain market environment and high levels of yield. 


Published in Wealth Management
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