Fixed Income ETFs in demand, according to Markit

Mar 9th, 2016 | By | Category: Fixed Income

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Index provider Markit has released a report showing that assets under management (AUM) in fixed income exchange traded funds are increasing as a percentage of total AUM.  The report, which investigates flows into ETFs across a range of asset classes, found that ETF providers capitalised on the trend by dedicating a greater proportion of fund launches with fixed income exposure.

Fixed Income ETFs in demand, according to Markit

The research report from Markit found that strong growth in demand for fixed income ETFs has seen the asset class grow in both absolute terms and relative to other asset classes within the ETF space.

The report notes that global AUM for ETFs has risen by $130bn since the start of the year to 7 March 2016, driven by $35bn in net gatherings with the balance derived from price moves in underlying asset values.

Relte Stephen Schutte, Analyst at Markit, said in a statement: “This year to date jump in AUM is even more impressive when taking into consideration the fact that equity funds which manage 75% of all assets have seen their AUM shrink since the start of the year due to falling markets and outflows out of the asset class.

“A further look into inflows shows that investors were most eager to buy government bond funds with the asset class gathering half of all inflows since the start of the year.”

Markit data shows that the second most popular asset class over this period was precious metals, which recorded nearly $10bn in net inflows, highlighting the desire to hold safe-haven assets such as gold during heightened market volatility since the year began. Broad market fixed income was the third most popular asset category, attracting over $6bn in net inflows.

Commenting on the growing popularity of fixed income ETFs, Schutte notes: “The asset class now manages an all-time high $585bn of AUM which represents a fifth of all assets managed by the ETF industry. There are a growing number of funds serving this market with 957 products as of latest count.

“The affinity towards fixed income ETFs is also proving to be a global phenomenon as European and Asian listed funds gather pace. (Asia Pacific) fixed income AUM has grown nine fold since 2011 to $50bn. The strong growth in the region is attributable to Chinese fixed income products attracting large inflows in 2015 which has continued in 2016.”

The report further notes that current equity ETF launches have become increasingly exotic, more often than not offering specific sector or style exposures, as providers seek to differentiate their products in an increasingly crowded market. In contrast, fixed income ETF launches mostly track vanilla debt instruments. Of the 17 fixed income ETFs launched in February, the majority provided exposure government or investment grade corporate bonds from US or European issuers. State Street Global Advisors (SSGA) and Vanguard in particular were instrumental in listing broad market bond ETFs during February.

SSGA  brought 11 fixed income ETFs to market:

SPDR Barclays U.S. Corporate Bond UCITS ETF (SYB1)
SPDR Barclays 3-10 Year U.S. Corporate Bond UCITS ETF (SYBR)
SPDR Barclays 3-5 Year U.S. Treasury Bond UCITS ETF (SPP3)
SPDR Barclays 5-7 Year U.S. Treasury Bond UCITS ETF (SPP5)
SPDR Barclays 7-10 Year U.S. Treasury Bond UCITS ETF (SPP7)
SPDR Barclays 10+ Year U.S. Treasury Bond UCITS ETF (SPPX)
SPDR Barclays 3-7 Year Euro Corporate Bond UCITS ETF (SPPI)
SPDR Barclays 7+ Year Euro Corporate Bond UCITS ETF (SPPL)
SPDR Barclays 5-7 Year Euro Government Bond UCITS ETF (SYB6)

SPDR Barclays 7-10 Year Euro Government Bond UCITS ETF (SYB7)
SPDR Barclays 10+ Year Euro Government Bond UCITS ETF (SYBV)

Vanguard launched four fixed income ETFs:

Vanguard EUR Corporate Bond UCITS ETF (VECP)
Vanguard EUR Eurozone Government Bond UCITS ETF (VETY)
Vanguard USD Corporate Bond UCITS ETF (VUCP)
Vanguard USD Treasury Bond UCITS ETF (VUTY)

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