Corporate Bond ETF Bucks Outflow Trend

SCHI has become one of the largest intermediate-term corporate bond ETFs in a year in which investors have largely shunned such funds.

sumit
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Senior ETF Analyst
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Reviewed by: Sumit Roy
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Edited by: Sumit Roy

An ultra-cheap corporate bond exchange-traded fund has quietly been ballooning in assets in an otherwise tepid year for corporate bond demand. The Schwab 5-10 Year Corporate Bond ETF (SCHI) has pulled in a whopping $4.7 billion so far this year, the seventh-most of any ETF. 

Today the fund’s assets under management stand at $5.1 billion, up from only $328 million at the start of the year. 

 

 

SCHI is the cheapest ETF in the intermediate-term corporate bond category, with an expense ratio of 0.03%. That’s just a touch below the two largest funds in the space, the Vanguard Intermediate-Term Corporate Bond ETF (VCIT) and the iShares 5-10 Year Investment Grade Corporate Bond ETF (IGIB), each of which costs 0.04% per year to hold. 

VCIT has nearly $40 billion in AUM, while IGIB has $11 billion.  

But unlike SCHI, those two ETFs—as well as corporate bond ETFs broadly—haven’t seen much interest from investors this year. 

The category has seen outflows of $477 million on a year-to-date basis despite delivering strong returns. 

VCIT, IGIB and SCHI are each up 5% this year.  

Meanwhile, the riskier iShares iBoxx USD High Yield Corporate Bond ETF (HYG) and the SPDR Bloomberg High Yield Bond ETF (JNK) have returned around 3% year to date, but investors have pulled more than $2.2 billion from each fund so far this year.  

The tepid inflows for most corporate bond ETFs contrasts with the strong inflows for Treasury bond ETFs. The iShares 7-10 Year Treasury Bond ETF (IEF), the iShares 20+ Year Treasury Bond ETF (TLT) and the iShares Short Treasury Bond ETF (SHV) have seen billions of dollars of inflows, helping to power overall inflows for U.S. fixed income ETFs to $50.8 billion.  

Model Portfolio Tweak? 

While impressive, the exceptional money flows for SCHI could be the result of tweaks to model portfolios that Schwab offers to its clients. 

These model portfolios allow clients to invest in prebuilt portfolios of ETFs that match their investment objectives. When allocations to ETFs are changed within the model portfolios, large inflows or outflows from those ETFs can result. 

While Schwab didn’t confirm the inflows for SCHI were the result of such tweaks, in an email to etf.com, the firm hinted that it could be the case: 
 
SCHI experiences asset flows from various shareholders. As part of Schwab’s ongoing commitment to our clients, we periodically review and update the asset allocations and ETF selections across our packaged solutions. These updates help make sure portfolios continue to reflect the long-term investment landscape, as well as ensure that our clients’ goals continue to be aligned with their risk profiles. 

 

Whether the demand is coming from Schwab’s own clients or not, SCHI is now one of largest ETFs in the intermediate-term corporate bond category.  

 

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

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.