Bond ETFs are hot — not as hot as equity ETFs, but hotter than they’ve ever been.
Seventy billion dollars flowed into U.S. fixed income ETFs in the first half of this year, suggesting inflows will easily outpace last year’s $92 billion, according to Todd Rosenbluth, director of ETF Research at CFRA.
Asset managers are responding to the growing demand by introducing new fixed income ETFs — seemingly a new one every day, says Rosenbluth — and filing with the Securities and Exchange Commission to introduce even more.
BlackRock launched four new corporate bond ETFs in mid-July — three investment-grade corporate ETFs, including two with positive ESG ratings, and one high-yield.
At the same time, Nuveen filed a registration statement with the SEC for its first ESG bond ETF, the NuShares ESG U.S. Aggregate Bond ETF, months after it launched a suite of equity ESG ETFs. Columbia Threadneedle filed with the agency a registration statement for the Columbia Diversified Fixed Income Allocation ETF, a multi-factor smart beta ETF.
Smart Beta More Popular Than Ever
Many of the new bond ETFs are smart beta funds, which track indexes that, unlike traditional indexes, are not market weighted.
The introduction of these funds is “an extension of the evolution of smart beta” equity funds that asset managers have launched, according to Phillip Yoo, ETF analyst at Morningstar. “They want to replicate that success now in the bond ETF space.”
In fact, growth in smart beta strategies is accelerating at a rapid pace, according to a new report from FTSE Russell.
Allocations to smart beta strategies reached a new peak of 46% of global asset owners, up from 36% last year — an increase of 10 percentage points, or almost 28%, according to the fourth annual FTSE Russell Global Institutional Smart Beta Survey.
Another 25% of asset owners are currently considering using smart beta strategies, indicating a “healthy pipeline” for future allocations, according to the survey.
“The survey results suggest that growth in smart beta is likely to continue at a robust pace,” said Rolf Agather, managing director of North America Research at FTSE Russell.
Asset owners with $1 billion to $10 billion in assets under management led the increase in use of smart beta strategies in the past year, and adoption was strongest in Europe, where 60% of asset owners reported a smart beta allocation, followed by Asia Pacific (48%), then North America (37%).