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September 10, 2014 at 01:19 PM
Despite a bullish month for stocks, investors seemed to prefer fixed income exchange-traded funds in August.
According to the US ETF Flash Flows report from State Street Global Advisors, fixed income outpaced equities by nearly $2.4 billion.
“Investors are embracing fixed income to use as part of their portfolio,” said David Mazza, head of research for SPDR ETFs and SSgA Funds, in an interview with ThinkAdvisor.
In contrast to prior months, fixed income ETFs accounted for more than half of the $14.8 billion of inflows into U.S.-listed ETFs in August, attracting nearly $8.4 billion of new assets.
Mazza attributes some of fixed income’s growth over the last month to the pockets of volatility the equity markets faced at the start of August with rising tensions in the Middle East and Ukraine, revealing that some investors remained cautious as summer was winding down. In June and July, Mazza adds, equity ETFs took in a significant level of assets.
While equity ETFs remain well in the lead for the year with a year-to-date flow of more than $66 billion, Mazza says fixed income is growing at a much faster rate. According to the report, year-to-date asset class flows have increased by 12.74% for fixed income and 4.95% for equity.
Mazza points to the diversification fixed income ETFs can offer investors as well as the lower interest rate risk than traditional fixed income investments as the reason for some of that growth seen in the fixed income ETF class.
Emerging Markets
One of the biggest trends that Mazza said is beginning to appear is investors rotating out of Europe and into emerging ETFs.
While emerging markets significantly underperformed last year, Mazza said he saw interest grow in emerging market ETFs in July and is continuing to see it in August.
“Significant risks remain in emerging markets; however, with accommodative monetary policy improving and inexpensive valuations in the market, emerging is looking increasingly attractive and has continued to see inflows,” the report said.
