As U.S. equity ETFs face outflows, fixed income ETFs are the investment of choice. They attracted $15.3 billion in inflows in April, the second highest monthly inflows ever recorded — only the $17 billion record in October 2014 was greater — while equity ETFs attracted $10 billion following two straight months of outflows, according to State Street Global Advisors.
This was the third consecutive month that fixed income inflows outpaced equity inflows, and active bond ETFs accounted for almost two-thirds of bond inflows. While investors weren’t avoiding risk necessarily, they appear to be trying to temper it. In addition, they favored government and investment-grade bonds over all other fixed income funds.
Government bond ETFs attracted $6.7 billion in inflows while investment-grade corporate bond ETFs attracted $3.2 billion. Ultra-short-term fixed income ETFs were the most popular among maturity levels, which makes sense given the steady rise in both short-term and long-term rates since the beginning of the year.
Long-term bond ETFs with maturities above 10 years, however, also attracted inflows, of $1.7 billion despite rising rates and the 10-Year Treasury yield breaking above 3% in late April (before retreating slightly).
“This may point to investors believing that the 3% breakthrough may not hold,” wrote Matthew Bartolini, head of SPDR Americas Research at State Street in the April report.
Even high-yield bond ETFs saw inflows in April, breaking a record-setting five months of outflows. Preferred debt and emerging market bonds were the only fixed income categories with outflows in April, and preferred and high-yield debt were the only two debt categories posting outflows year to date.
Among equity ETFs, large-cap ETFs attracted the biggest inflows in April — $5.65 billion versus $1.7 billion into small caps — but not enough to offset outflows in previous months, which in total are down $237 billion. Flows into U.S. stock ETFs were substantially higher than flows into international ETFs in developed markets ($3.4 billion) and emerging markets ($2.6 billion).
Despite the popularity of fixed income ETFs in April and outflows from equity ETFs earlier this year, year-to-date data show that equity inflows, at $56.9 billion, were almost twice as much as fixed income ETF inflows, at $31.6 billion.