Money continues to flood into fixed-income ETFs

Money continues to flood into fixed-income ETFs

Money has continued to pour into fixed-income ETFs with BlackRock’s Brett Pybus putting this down to growing interest among institutional investors.

Mr Pybus, a member of the product strategy team in BlackRock’s fixed-income portfolio management group, said fixed-income ETFs stand globally at US$460bn (£293bn).

He said: “This is reflective of what was a stand-out 2014 when we had US$85bn (£54bn) come into the industry as a whole.

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“So far this year we have had US$46bn (£29bn), so we are tracking ahead of what was a record year in itself.”

Mr Pybus added BlackRock’s iShares has seen about US$23bn (£15bn) of inflows in 2015 to date, with around half of that coming from Europe and the rest from the US.

He added that ETFs have “come of age” in Europe, where they have traditionally been less popular than in the US.

Mr Pybus said a number of reasons could lie behind the growth of fixed-income ETFs, citing as an example the US$2bn (£1.28bn) which has come into inflation-linked bonds because of concerns about when the Fed and the Bank of England will raise interest rates.

Two “clear stand-out winners” have been investment-grade credit and high yield, Mr Pybus added, though emerging markets have been “muted”.

He said: “On the fixed-income side, in particular, we are seeing a marked increase in the conversations we are having with investors.”

“The conversation has changed to where it is less of a mutual fund versus ETF for investors – it’s more of an ETF versus another product they could use in fixed-income markets. So that type of conversation has definitely shifted in the past six to 18 months.”

Meanwhile Nitesh Shah, associate director for research at ETF Securities, said: “Weaker than expected German Q1 GDP data, a downgrade of the UK GDP forecast from the Bank of England, and a string of poor Chinese data suggest that monetary easing from the world’s major central banks will continue for the foreseeable future.”

Adviser view

Andrew Swallow, director of London-based Swallow Financial Planning, said: “Right now I am incredibly bearish on fixed income, full stop. But there are several ETF products which are very popular because they are very short-dated.

“So if, like me, you believe fixed income is a terrible investment over the next 10 years because interest rates will rise, but you need some for your asset allocation, then you are going to choose something very short-dated, and there are some excellent ones around such as the iShares 1-5.”