Then this week investors pushed their money into fixed income ETFs at record levels. According to BlackRock’s latest ETP Landscape report, fixed income ETPs set a new global record, attracting $9.1bn1 in January 2012 – 27% of overall inflows into the ETP space. With long-dated Treasuries offering negative returns as measured against core inflation, investors are wisely seeking out income-producing products according to BlackRock which noted that dividend-focused equity ETPs attracted net inflows of $3.0bn and investment grade and high-yield corporate bond ETPs together garnered $7.0bn of net new assets in January 2012.
The influx of money into fixed income ETPs could also reflect growing concerns about the value of active management in the bond space – something that is evident after PIMCO experienced its worst year ever, with investors pulling more money out of its flagship $250 billion Total Return Fund than they put in.
At the same time, PIMCO also shook up the ETF landscape by announcing it’s creating an ETF based on the same fund.
I think fixed income ETFs are becoming an interesting space for pension funds to explore – plan sponsors are having a heck of a time dealing with the fact that 30% to 40% of their portfolios are stuck in low interest government bonds, while the rest of their portfolio takes on added equity risk to make up for poor bond performance.
If fixed income is indeed a way to achieve value add then ETFs might help them dip a toe into better opportunities for income and yield.