Bond ETFs Emerge as a New Year Investor Favorite
U.S. fixed income funds absorbed $9.4 billion last week.
Investors are flocking to bond exchange-traded funds as recession bells ring.
ETFs netted $9.3 billion in inflows during the first trading week of 2023, jumping 58% from the $5.9 billion the industry posted the week prior, according to ETF.com data.
U.S. fixed income products pulled in $9.4 billion, soaring from the $1.5 billion seen in the week ending Dec. 30. Meanwhile, equity funds recorded a $2.7 billion loss, a reversal from the inflows of the same amount in the previous week.
All but one of the 10 best-performing U.S.-traded ETFs in the week ending Jan. 6 were fixed income funds, according to ETF.com data. Of those, the top three asset-gatherers were the iShares Core U.S. Aggregate Bond ETF (AGG), the iShares iBoxx USD High Yield Corporate Bond ETF (HYG) and the iShares 0-3 Month Treasury Bond ETF (SGOV) which brought in $3.6 billion, collectively, ETF.com data shows.
On the other side of the ledger, nine of the 10 funds with the greatest losses were equity-focused ETFs, with the iShares Russell 2000 ETF (IWM) alone shedding $1.5 billion.
More Hikes Predicted
Investors’ movement from stocks to bonds—often seen as safer investments during economic downturns—come after multiple Federal Reserve officials have come forward in predicting more interest rate hikes to come and elevated interest rates for the foreseeable future.
“I think something above 5[.0%] is absolutely, in my judgment, going to be likely,” Federal Reserve Bank of San Francisco President Mary Daly said in a streamed interview with the Wall Street Journal on Monday, in reference to interest rate expectations for 2023.
She went on to add that the central bank’s terminal rate, which indicates the highest point the federal funds rate would reach this cycle, is unclear and depends on inflation-related data to come.
Daly’s comments come just a week after Minneapolis Fed President Neel Kashkari stated that the central bank’s so-called terminal rate could reach as high as 5.4% before easing, in a post on Medium. Both Kashkari and Daly reiterated the Fed’s commitment to reaching a 2% inflation target. The fed funds rate currently sits between 4.0% and 4.25%.
Other Federal Reserve officials also warned against an “unwarranted” loosening of financial conditions in lieu of dashing their attempts to achieve price stability, according to the minutes from the Federal Open Market Committee’s mid-December meeting on Jan. 4. They went on to add that if slower economic growth did not ensue in 2023, the possibility of a recession was a “plausible alternative.”
Wall Street institutions are also sounding the alarm for a recession in 2023, Bloomberg News reported, with BlackRock’s Investment Institute stating that “a recession is foretold,” and Barclays predicting “one of the weakest years for the world economy in 40 years.”
For a full list of last week’s top inflows and outflows, see the tables below:
Top 10 Creations (All ETFs)
Ticker | Name | Net Flows ($,mm) | AUM ($, mm) | AUM % Change |
AGG | iShares Core U.S. Aggregate Bond ETF | 1,282.59 | 84,549.05 | 1.52% |
HYG | iShares iBoxx USD High Yield Corporate Bond ETF | 1,216.59 | 16,930.91 | 7.19% |
SGOV | iShares 0-3 Month Treasury Bond ETF | 1,106.39 | 7,496.08 | 14.76% |
TLT | iShares 20+ Year Treasury Bond ETF | 844.50 | 28,623.03 | 2.95% |
BIL | SPDR Bloomberg 1-3 Month T-Bill ETF | 685.89 | 27,166.62 | 2.52% |
GBIL | Goldman Sachs Access Treasury 0-1 Year ETF | 645.87 | 5,209.28 | 12.40% |
IEMG | iShares Core MSCI Emerging Markets ETF | 549.42 | 65,728.48 | 0.84% |
USFR | WisdomTree Floating Rate Treasury Fund | 426.62 | 13,488.91 | 3.16% |
XLI | Industrial Select Sector SPDR Fund | 420.55 | 13,831.24 | 3.04% |
LQD | iShares iBoxx USD Investment Grade Corporate Bond ETF | 362.75 | 36,083.86 | 1.01% |
Top 10 Redemptions (All ETFs)
Ticker | Name | Net Flows ($,mm) | AUM ($, mm) | AUM % Change |
IWM | iShares Russell 2000 ETF | -1,515.33 | 50,776.97 | -2.98% |
SPY | SPDR S&P 500 ETF Trust | -1,062.61 | 352,804.37 | -0.30% |
QQQ | Invesco QQQ Trust | -788.63 | 142,014.01 | -0.56% |
SHV | iShares Short Treasury Bond ETF | -574.80 | 19,766.30 | -2.91% |
IWD | iShares Russell 1000 Value ETF | -516.61 | 53,981.17 | -0.96% |
IVV | iShares Core S&P 500 ETF | -497.30 | 286,674.58 | -0.17% |
IWF | iShares Russell 1000 Growth ETF | -465.19 | 57,711.54 | -0.81% |
VYM | Vanguard High Dividend Yield ETF | -340.74 | 49,930.54 | -0.68% |
XLE | Energy Select Sector SPDR Fund | -293.99 | 39,910.27 | -0.74% |
IYR | iShares U.S. Real Estate ETF | -224.70 | 3,590.19 | -6.26% |
ETF Weekly Flows By Asset Class
Net Flows ($, mm) | AUM ($, mm) | % of AUM | |
U.S. Equity | -2,695.24 | 3,816,242.92 | -0.07% |
International Equity | 2,105.23 | 1,163,438.00 | 0.18% |
U.S. Fixed Income | 9,404.59 | 1,171,505.77 | 0.80% |
International Fixed Income | -86.18 | 139,483.66 | -0.06% |
Commodities | 245.43 | 130,413.36 | 0.19% |
Currency | -23.63 | 3,697.46 | -0.64% |
Leveraged | 169.41 | 43,869.10 | 0.39% |
Inverse | 329.15 | 24,436.32 | 1.35% |
Asset Allocation | -144.47 | 16,830.81 | -0.86% |
Alternatives | 20.56 | 8,841.93 | 0.23% |
Total: | 9,324.84 | 6,518,759.35 | 0.14% |
Asset Classes (Year-to-Date)
Net Flows ($, mm) | AUM ($, mm) | % of AUM | |
U.S. Equity | -2,695.24 | 3,816,242.92 | -0.07% |
International Equity | 2,105.23 | 1,163,438.00 | 0.18% |
U.S. Fixed Income | 9,404.59 | 1,171,505.77 | 0.80% |
International Fixed Income | -86.18 | 139,483.66 | -0.06% |
Commodities | 245.43 | 130,413.36 | 0.19% |
Currency | -23.63 | 3,697.46 | -0.64% |
Leveraged | 169.41 | 43,869.10 | 0.39% |
Inverse | 329.15 | 24,436.32 | 1.35% |
Asset Allocation | -144.47 | 16,830.81 | -0.86% |
Alternatives | 20.56 | 8,841.93 | 0.23% |
Total: | 9,324.84 | 6,518,759.35 | 0.14% |
Disclaimer: All data as of 6 a.m. Eastern time the date the article is published. Data is believed to be accurate; however, transient market data is often subject to subsequent revision and correction by the exchanges.