Exchange traded products (ETPs) focusing on fixed income have been growing – even in the face of rising interest rates. We delve into the group’s money flows and asset mix in this quarterly report. Highlights include:……
– Fixed income ETPs held $354 billion in assets globally at year end. They account for about 15% of total assets – three times their share in 2005 but down from a high of 17.4% at the end of 2012.
– The three largest fixed income subgroups (government bonds, investment grade and high yield) account for around 60% of the segment’s assets. ETPs focusing on broad aggregate indices make up just one-eighth of assets.
– The big trend in 2013? A ‘great rotation’ into funds focusing on shorter maturity bonds. Investors have been yanking money out of broad maturity funds and ploughing it into short duration and floating rate funds as they seek protection from higher interest rates.
– The ratings distribution of the average corporate bond ETP is changing – mainly due to shifts in the bond market itself. The biggest change: a decline in the quality of investment grade funds. Reasons include ratings downgrades of (investment grade) banks and a record bond sale by Verizon that increased the share of BBB bonds in benchmarks.
– We detail the holdings of leading ETPs focused on corporate debt, by industry and by most popular issues held.
Annual growth in fixed income ETP assets slowed to 4.5% in 2013, down from the heady double-digit pace of recent years. The fixed income share of the total ETP pie shrunk as money flooded into developed equity funds. See the chart below. Yet growth has remained firm amid higher interest rates – and steady institutional demand for yield is likely to keep bonds in demand.
Source: ETFWorld.es – BlackRock ETP Research