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Portfolio > Economy & Markets > Fixed Income

ETF Investors Move Into Shorter Duration, Senior Loans in Bond Selloff: SSgA

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Click to enlarge: ETF Assets and Flows (Source: Markit, SSgA, as of May 31.)Investors in State Street Global Advisors’ fixed-income exchange-traded funds are moving their money into shorter duration products and senior loan products since the bond market started its selloff last week, said the firm’s global head of ETF capital markets on Tuesday.

“It’s been a busy couple of days. We’ve seen some selling pressure in the fixed-income products,” said Tim Coyne of SSgA, the nation’s second-largest ETF firm, which manages more than 100 ETFs in a broad variety of asset classes. “We have a lot of client questions coming our way on fixed income liquidity and performance. People are looking at how to position their portfolios.”

Coyne said on Tuesday that investors are still looking for yielding investments, including fixed income, but flows into the high-yielding SPDR Barclays High Yield ETF (JNK) have slowed.

Now, he said, SSgA is seeing more flows into shorter duration products such as SPDR BarCap ST High Yield Bond ETF (SJNK) as well as new senior loan products that SSgA launched about eight weeks ago. For example, the actively managed SPDR Blackstone/GSO Senior Loan ETF (SRLN) portfolio has seen $280 million in volume in the last eight weeks.

High-yield stock ETFs’ 2013 gains have vanished due to the bond markets’ rate spike, reported web editor John Spence on Tuesday.

“SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) is off 2.5% so far in 2013 and iShares U.S. Preferred Stock ETF (NYSEArca: PFF) is down 1.8%, according to Morningstar,” Spence wrote. “The recent sell-off as Treasury yields surge has resulted in losses of about 6% over the past month for both funds. The ETFs have also dropped below their 200-day moving averages.”

Surprisingly, investors so far in 2013 have remained faithful to fixed income.

In a midyear 2013 SPDR ETF outlook released on Monday, SSgA ETF investment strategy head David Mazza studied ETF asset flows from January through May and found that investors “remain interested in adding to their fixed income exposure through ETFs even as the prospects of future positive total returns are weakening.”

State Street’s assets under management still weigh heavily toward stock ETFs — at $1.55 billion AUM in equity versus $382 million AUM in fixed income — yet flows were stronger in fixed income funds, Mazza said.

“With nearly $84 billion of inflows during 2013, investors have found comfort in equity ETFs, but not at the expense of fixed income funds, which brought in $30 billion this year,” Mazza wrote. “While this may simply be a function of the continued acceptance of fixed income ETFs by a wider investor base, flows as a percentage of assets were slightly stronger than equities.”

Year to date as of May 31, flows as a percentage of assets stood at 7.9% for fixed income and 5.4% for equities (see chart).

Meanwhile, the biggest loser in ETF flows was the commodity market. A total of $23 billion flowed out of commodities at a negative 17.7% year-to-date flow as a percentage of assts.

“Commodity exposure has clearly been out of favor in 2013,” Mazza wrote. “Even with a sizable outflow from commodities, the global ETF industry has seen over $93 billion of net flows over the first five months of the year.”

For direct insights on the role of ETFs in client portfolios from multiple experts—including Rick Ferri, Ron Delegge, Skip Schweiss and more—we invite you to register for AdvisorOne’s premiere advisorcentric Virtual ETF Summit, which starts July 23 (and get multiple hours of CFP Board CE).


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