3 ETF Predictions For Rest Of 2015

August 07, 2015

Nº 2 Bond Investors Are Going To Freak

Fixed-income ETF investors are frozen right now. For the past few years, fixed income has been the hottest place for flows in the ETF market. In 2014, for instance, investors put more than $50 billion to work in U.S. fixed-income ETFs. In the second quarter of 2015, that number slowed to just $135 million.

It's not that people stood pat. They yanked $4.5 billion out of high-yield bond ETFs, fled 20-plus-year Treasurys and lightened up on investment-grade bonds. Instead, they put money to work in some of the most boring funds in the world: The iShares Core U.S. Aggregate Bond ETF (AGG | A-98) brought in $1.5 billion in new assets in Q2. The iShares 1-3 Year Treasury Bond ETF (SHY | A-97) netted $1.3 billion. And the iShares TIPS Bond ETF (TIP | A-99) pulled in $952 million, despite yielding essentially zero, with no prospect for inflation on the horizon.

The move out of high-yielding funds and into placeholders leads me to believe investors don't know what to do. The easy trades are all done now, and investors are just waiting for rates to do something.

Two ETFs worth keeping an eye on in this market include:

SPDR Doubleline Total Return Tactical Bond ETF (TOTL)
We predicted in January that TOTL would be a big success in 2015, and while it hasn't attracted assets the way we expected it to, there's still time. The fund—run by bond superstar Jeffrey Gundlach—has performed well, outperforming funds like AGG and the PIMCO Total Return fund (BOND | B), and it offers investors a way to offload the decision-making process to an internationally respected bond superstar.

Market Vectors High Yield Municipal Bond ETF (HYD | C-59)
As uber-advisor Richard Bernstein is quick to point out, high-yield munis offer a better yield than the bonds of Lebanon right now, and are just a smidge more expensive than Iraqi bonds. With the economy still doing well and tax receipts coming in, getting a 5.5% tax-free yield on some decent credits could be attractive.

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