Market Overview

One Of This Top Asset-Gathering Bond ETFs Has Little US Debt

One Of This Top Asset-Gathering Bond ETFs Has Little US Debt

Year-to-date, three fixed income exchange-traded funds are among the top 10 ETFs in terms of new assets added. The iShares Short Treasury Bond ETF (NYSE: SHV) and the iShares Core Aggregate Bond ETF (NYSE: AGG) probably don't come as surprises regarding bond fund asset-gathering proficiency.

The Vanguard Total International Bond ETF (NASDAQ: BNDX) is making a name for itself as well and doing so with scant exposure to U.S. debt. At the end of the first quarter, BNDX allocated just 3 percent of its weight to U.S. bonds. The fund's total North American exposure was just 8.40 percent, according to issuer data.

What Happened

Year-to-date, investors have added $2.31 billion to BNDX, good for the third-best total among U.S.-listed fixed income ETFs and the 10th-best among all US-listed ETFs. At the end of the first quarter, BNDX had $11.1 billion in assets under management. The fund has seen second-quarter inflows of just over $379 million.

BNDX tracks the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). As its name implies, that index hedges currency risk, meaning that if the recent uptick in the dollar is sustainable, more investors could be drawn to BNDX.

Why It's Important

Investors' increased interest in BNDX likely isn't yield-driven. The ETF's yield is just 2.22 percent, typically not enough to get investors interested in international debt when 10-year Treasuries are well above that range.

Investors could be leaning to BNDX based on the notion that few if any of its marquee geographic exposures are likely to raise interest rates this year. That or market participants are favoring BNDX as a way to bet on a resurgent dollar while generating some income.

What's Next

Credit risk isn't an issue with BNDX as 83 percent of its 4,815 holdings are rated AAA, AA or A. The ETF's duration is 7.9 years with an average effective maturity of 9.4 years. In the absence of surprise interest rate cuts by member countries, BNDX's near-term capital appreciation potential could be driven in large part by the U.S. dollar.

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