Boring Bonds Boost ETF Asset Growth

Equity-based funds have been the primary drivers of growth in the booming exchange traded funds industry. This year, fixed income funds are taking on the role of growth driver for the ETF business.

Swelling assets under management tallies for bond ETFs have been buoyed by investors' thirst for safer assets since the start of the year. Now, global assets under management for bond ETFs resides at a record $583 billion and a fair amount of this year's crop of rookie ETFs are bond funds.

“Once again, global ETF AUM is edging closer to the slippery $3trn mark which was last breached in October 2015. AUM of global ETFs has risen $130bn ytd. A quarter of this has been driven by $35bn of inflows with the balance driven by price moves in underlying investments and net asset values,” said Markit in a new note. 

An anecdote we've highlighted in this space several times this year is that on a year-to-date basis, six of the top 10 asset-gathering ETFs in the U.S. are bond funds. Conversely, not one of the 10 worst U.S. ETFs in terms of lost assets is a fixed income ETF. 

While 2016 is not even three months old, assume for a moment that bond ETFs keep their torrid pace going and by the time this year ends, six bond funds are still among the year's top 10 asset-gathering ETFs. That would equal the number of bond funds appearing on a given year's top 10 asset gatherers list for the past four years combined.

The bond of flavor of 2016 for U.S. advisors and investors has been Uncle Sam fare, such as the iShares 20+ Year Treasury Bond ETF TLT. However, as oil prices have rebounded and risk appetite has climbed, riskier bond funds have been attracting investors. For example, the iShares iBoxx $ High Yield Corporate Bond ETF HYG and the SPDR Barclays High Yield Bond ETF JNK, the two largest high-yield corporate bond ETFs by assets, have added a combined $3.2 billion in new assets this year. Most of that figure has matriculated into HYG and JNK over the past several weeks.

“This strong investor demand for fixed income means that the market share of the asset class has risen by 30% in the past five years. The asset class now manages an all-time high $585bn of AUM which represents a fifth of all assets managed by the ETF industry. There are a growing number of funds serving this market with 957 products as of latest count,” said Markit.