Dancing In September...For Bond ETFs - State Street SPDR Bloomberg 1-3 Month T-Bill ETF (ARCA:BIL), iShar

The Federal Reserve maintaining its near zero interest rate policy is helping with the theme of September being a banner for bond ETFs, but even before the Fed confirmed rates will remain where they are until at least October, possibly longer, investors were piling into fixed income exchange traded funds.

“Treasury ETFs took in $3.9 billion in the first two weeks of the month with most money coming the first week of the month on the heels of the steep selloff in late August. Investors showed no concern over interest rate risk as they used a variety of maturities to hide out in,” according to Bloomberg's mid-September ETF Review.

Led by the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE: LQD), the largest corporate bond ETF, five of the top 10 asset-gathering ETFs on a month-to-date basis are fixed income funds. To this point in September, LQD has hauled in over $1.1 billion in new assets.

Aided by the Fed's decision to eschew an interest hike earlier this month, investors have been piling into Treasury ETFs. As Bloomberg noted, the iShares Barclays 1-3 Year Treasury Bond ETF (NYSE: SHY) and the iShares 20+ Year Treasury Bond ETF (NYSE: TLT) have been particularly prolific asset gatherers this month, adding a combined $1.8 billion in new assets.

Still, inflows to the likes of SHY and the SPDR Barclays 1-3 Month T-Bill ETF (NYSE: BIL) could be interpreted as a sign that market participants remain pensive regarding the specter of an imminent rate hike by the Fed and are expressing that skittishness with lower duration bond funds. SHY's effective duration is less than 1.8 years while duration is not even an issue for BIL, which has a modified adjusted duration of just 0.11 years. Duration measures a bond's sensitivity to changes in interest rates.

Even with the increased flows to bond funds, plenty of equity-based ETFs are raking in new assets. September's top two asset-gathering ETFs are the SPDR S&P 500 ETF (NYSE: SPY) and the iShares Russell 2000 ETF (NYSE: IWM).

"After the market scare in late August, and before the Fed’s decision to leave rates unchanged, investors poured $12 billion into U.S. equity ETFs. Almost all of that money came in the second week of the month and went into two ETFs that are especially popular with traders and institutions: SPY and IWM,” according to Bloomberg.

Interestingly, even though investors have widely embraced bond funds, they have been departing rate-sensitive and bond-proxy equity-based ETFs. For example, the Consumer Staples Select Sector SPDR (NYSE: XLP), Utilities Select Sector SPDR (NYSE: XLU) and the iShares U.S. Real Estate ETF (NYSE: IYR) are among the 10 ETFs most afflicted by outflows this month.

Given the utilities sector's reputation for being negatively correlated to interest and lagging after the Fed boosts borrowing costs, investors should be rejoicing that XLU and friends are in the clear for at least another month, not departing. Month-to-date, XLP and XLU are up an average of 2.4 percent while IYR has jumped 4.2 percent.

BILState Street SPDR Bloomberg 1-3 Month T-Bill ETF

$91.43-%

Overview

IWMiShares Russell 2000 Index Fund

$300.030.09%

IYRiShares U.S. Real Estate ETF

$105.14-%

LQDiShares iBoxx $ Investment Grade Corporate Bond ETF

$106.66-0.07%

SHYiShares 1-3 Year Treasury Bond ETF

$81.86-0.05%

SPYState Street SPDR S&P 500 ETF Trust