Most Popular New Fixed Income ETFs

July 25, 2019

Stocks may be at record highs, and the Vanguard S&P 500 ETF (VOO) may be the most popular exchange-traded fund this year, with nearly $10 billion in inflows, but ETF investors have been more interested in another asset class: fixed income.

Inflows for fixed income ETFs are outpacing inflows for their equity counterparts—$70 billion versus $60 billion—enough to push total U.S.-listed fixed income ETF assets under management to $767 billion.

Investors have been gung-ho about fixed income, as the Federal Reserve prepares to cut interest rates as soon as this month to offset slowing global economic growth. The U.S. 10-year Treasury yield recently dipped below 2% for the first time since 2016, while equivalent overseas bonds dipped into record-low territory.

The German 10-year yield touched an astonishing -0.4%, and a full $13 trillion of global debt—25% of the market—is yielding less than zero, according to Bloomberg.

While shockingly low interest rates can dampen the income-generating potential of fixed income securities and ETFs, in the period that rates are falling, the prices of those securities usually rise, boosting total returns.  The iShares 20+ Year Treasury Bond ETF (TLT), for example, only yields 2.4%, but is up 9.3% this year.


Billion Dollar Inflows

With investors increasingly believing that the path of least resistance for interest rates is down, the demand for fixed income ETFs has grown.

Most of the money entering the space this year has headed for large, liquid index-tracking funds like the iShares 7-10 Year Treasury Bond ETF (IEF), the Vanguard Total International Bond ETF (BNDX), the iShares U.S. Treasury Bond ETF (GOVT), the iShares Core U.S. Aggregate Bond ETF (AGG) and the aforementioned TLT. Those funds each have inflows of more than $4 billion so far this year.

However, some money is heading into new fixed income funds, which launched just this year. The inflows for these ETFs pale in comparison to those for the behemoths, but it’s still early in the life of these young funds.


Ticker Fund Expense Ratio Launch Date YTD Inflows ($M)
AWTM Aware Ultra-Short Duration Enhanced Income ETF 0.23% 1/29/2019 134.3
LDSF First Trust Low Duration Strategic Focus ETF 0.86% 1/3/2019 30.6
USI Principal Ultra-Short Active Income ETF 0.18% 4/24/2019 12.5
LGOV First Trust Long Duration Opportunities ETF 0.65% 1/22/2019 10.0
FISR SPDR SSGA Fixed Income Sector Rotation ETF  0.50% 4/2/2019 8.5


Aware Ultra-Short Duration Enhanced Income ETF (AWTM)
The most popular of this year’s new batch of fixed income ETFs is the Aware Ultra-Short Duration Enhanced Income ETF (AWTM), with inflows of $134 million. Launched in January, with a 0.23% expense ratio, AWTM is an actively managed ultra-short-term investment-grade bond fund. Naturally, given these characteristics, the fund has low interest rate and credit risk.

The ETF holds a combination of debt from government and corporate issuers, and targets a yield that is 0.75-1% above three-month Treasury bills. Currently, that leaves the fund with a 30-day SEC yield of 2.75%.

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