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%.

First Trust Low Duration Strategic Focus ETF (LDSF)

AWTM is the only new fixed income ETF so far this year to pick up more than $100 million in assets. The next one on the list, the First Trust Low Duration Strategic Focus ETF (LDSF), has managed to gather $30.6 million since January.

The fund, which has an expense ratio of 0.86%, is another actively managed low-duration product. Unlike the aforementioned AWTM, LDSF doesn’t target the ultra-low-duration space; rather, it aims for an effective portfolio duration of three years or less. That gives the fund a slightly higher 30-day SEC yield of 3.1%

LDSF is a fund of funds, so it holds other ETFs to meet its investment objectives.  Those ETFs target a combination of investment-grade, subinvestment-grade and international fixed income securities.

The top holdings currently include the First Trust Low Duration Opportunities ETF (LMBS) and the iShares MBS ETF (MBB).

Principal Ultra-Short Active Income ETF (USI)
At the No. 3 position on our list is another actively managed ETF, the Principal Ultra-Short Active Income ETF (USI), with inflows of $12.5 million and an expense ratio of 0.18%. USI targets the ultra-short duration space, just like AWTM.

Specifically, USI aims for an average effective maturity of three years or less, and an average portfolio duration of one year or less. The fund sometimes stretches for yield outside of the U.S., but predominantly holds U.S. investment-grade securities, especially corporates.

The current 30-day SEC yield stands at 2.6%.

First Trust Long Duration Opportunities ETF (LGOV)
The First Trust Long Duration Opportunities ETF (LGOV) is the first of the ETFs on this list that seeks exposure to longer-duration fixed income securities. Launched in January, LGOV has picked up $10 million in assets so far and has a 0.65% expense ratio.

It’s an actively managed fund that primarily targets U.S. government-backed, investment-grade securities—Treasuries, mortgage-related securities and the like. But it can also hold subinvestment-grade securities with up to 20% of its portfolio, and even short positions with up to 30% of its portfolio.

As advertised, the fund has a relatively long duration of around 12.4 years, but its 30-day SEC yield of 1% is low compared with similar funds.

SPDR SSGA Fixed Income Sector Rotation ETF (FISR)
The SPDR SSGA Fixed Income Sector Rotation ETF (FISR) rounds out the list of new fixed income ETF launches. It’s taken in $8.5 million and has a price tag of 0.50%.

Like the other funds on this list, FISR is actively managed. The fund attempts to provide excess return by “tactically allocating among income and yield-generating ETFs based on a proprietary process that combines quantitative and qualitative analysis.”

A fund-of-funds, FISR invests in ETFs that focus on U.S. government or agency fixed income securities, TIPS, corporate bonds, mortgage-backed securities, high yield bonds, senior loans and international bonds.

FISR’s broad reach results in a solid 30-day SEC yield of 3.1%. Top holdings include the SPDR Bloomberg Barclays Mortgage Backed Bond ETF (MBG), the SPDR Portfolio Long Term Corporate Bond ETF (SPLB) and the SPDR Bloomberg Barclays Intermediate Term Treasury ETF (ITE).

​Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2

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