Fixed Income ETP Flows Hit Record High In October

November 04, 2014

Inflows into fixed income exchange traded products hit a record high in October as investors continued their hunt for yield amid low inflation concerns.

Global flows into all ETPs hit $37.3 (€29.8) billion, of which $19.9 billion (53 percent) came from fixed income. Year-to-date fixed income flows have reached $73.3 billion, breaking the annual record of $70.0 billion set in 2012, according to a note from BlackRock.

Notably, high yield corporate bond ETPs had their best month this year with $2.3 billion flowing in.

Accompanying the fixed income fervour equities performed well on the back of stocks rebounding from a sharp correction as a result of economic growth and low inflation concerns.

BlackRock’s note explained that Japanese equity flows of $0.6 billion included $3.2 billion in the second half of the month as stocks rallied on expanded Bank of Japan stimulus and news the Government Pension Investment Fund will double its domestic equity allocation to 25 percent.

In Europe, ETPs gathered inflows of $8.5 billion over the month reversing the outflows recorded in September. Year-to-date, the European industry has now gathered inflows of $55.6 billion, nearly three times the total of $19.4 billion recorded in 2013.

Ursula Marchioni, Head of ETP Research EMEA at iShares said: “The recent volatility in equity markets, combined with the persistently low interest rate environment, pushed investors to intensify their search for yield.  Global income-oriented ETPs, such as dividend income equity and high yield corporate bond ETPs, recorded inflows of $7.5 billion this month, bringing the year-to-date total to $38.3 billion.”

However,'s fixed income conference in October saw several industry experts offering up warnings on fixed income.

Rick Rieder, a BlackRock managing director and chief investment officer of U.S.-based Fundamental Fixed Income, said at the time that market volatility highlighted how “the world relies too much on monetary policies, and we saw that last week [mid October]. We saw correlated and crowded fixed-income trades last week in the face of global growth slowdown.”

Bob Smith, president and chief investment officer of Texas-based Sage Advisory added that he was concerned about a potential lack of liquidity created by a surge in corporate bond issuances to finance stocks buybacks.

“Stock buybacks and their effect on the corporate bond market concerns me,” he said. Despite that segment of the ETF fixed-income space having the most assets under management—nearly $120 billion—he warned not to assume that means liquidity.

“Less than 1 percent of these bonds trade more than $5 million a day,” said Smith, adding that some corporate bonds do not trade at all in the course of a day. He also noted the one advantage an ETF structure offers fixed-income investors is an exit, even if the price might not be to their liking: “You can get out with an ETF versus an individual bond” that may be illiquid.


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