US-listed fixed income ETFs have recorded over $128 billion net inflows year-to-date, outpacing the previous full-year record of $127.1bn set in 2017.
Total AUM in US-listed fixed income ETFs now surpasses $800 billion.
According to State Street Global Advisors (SSGA), the asset manager behind the SPDR ETF suite, flows have been fuelled by two major trends: downside risk mitigation and yield at any price.
The firm notes that, due to geopolitical risk whipsawing sentiment all year, interest rate-sensitive sectors such as government bonds and mortgage-backed securities have taken in 60% of flows.
At the same time, a dearth of negative-yielding debt coupled with accommodative monetary policy has pushed investors further out on the risk curve, resulting in a best-ever year for high yield ETFs, attracting over $16bn in net inflows YTD.
Demand for high yield has held strong even though spreads are 30% below long-term averages and bonds are trading at their most negatively convex level ever.
SSGA notes that further drivers behind the record inflows into fixed income ETFs include liquidity needs and demographics, in addition to investors having more choices and ETFs continuing to show their mettle during times of stress.
US-listed fixed income ETFs have risen above $800bn in total assets under management. SSGA believes that if flow trends continue, AUM could top $850bn by the end of the year and have a realistic shot at surpassing $1 trillion in 2020.
Commenting on the outlook for the remainder of the year, Matthew J. Bartolini, Head of SPDR Americas Research, SSGA, said, “Diversification is the only free lunch, and the double-digit drawdowns from 2018 are still fresh in investors’ minds. It’s not that big of a surprise to see investors continuing to build up portfolio ballast in a year when the 20% global equity market gains year-to-date are juxtaposed against global economic policy uncertainty sitting at all-time highs.
“With the outlook for the rest of 2019 looking similar to the first three quarters of the year (slowing economic growth, falling corporate profits, trade uncertainty, Brexit, and low rates), having a diversified mix of assets may be beneficial. After all, the standard 60/40 portfolio is up double digits in 2019 and having its second-best yearly performance over the past ten years.”