Investors Piled Into Bond ETFs Last Year

Last year, U.S.-listed exchange traded fund took in $313 billion in new assets, short of 2017's record inflows, but still good for the second-best year on record.

While the Federal Reserve boosted interest four times in 2018, three of the year's top 10 asset-gathering ETFs were bond funds.

What Happened

Bond funds contributed mightily to 2018's overall ETF inflows. Last year, fixed income ETFs hauled in $97 billion in new assets.

“To CFRA, the biggest ETF flows trend was in fixed income, which pulled in $97 billion of new money in 2018, equal to a 31% share of net inflows, even as the Federal Reserve raised interest rates multiple times,” said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a Thursday note.

Why It's Important

With interest rates ring in 2018, bond investors were particularly fond of short duration ETFs, such as the iShares Short Treasury Bond ETF SHV and the iShares 1-3 Year Treasury Bond ETF SHY. SHV and SHY combined for over $22 billion of the new money added to bond ETFs last year.

Other popular short-term bond ETFs included the PIMCO Enhanced Short Maturity Active ETF MINT; the largest actively managed ETF, and the JPMorgan Ultra-Short Income ETF JPST. JPST was one of last year's fastest-growing bond funds.

“With Fed rate hikes on the mind, ultra-short and short-term bond funds designed to reduce interest rate sensitivity and yet generate some income were most popular,” said Rosenbluth. “JPST and MINT added $5.0 billion and $4.3 billion, respectively, aided by strong 2.2% and 1.7% gains.”

What's Next

Investors last year displayed enthusiasm for actively managed bond ETFs, a theme that could remain in place this year if the bond environment remains tricky.

“While ETFs remain known for tracking indices such as Bloomberg Barclays Aggregate Bond Index, which was flat in 2018, actively managed fixed income ETFs gathered $21 billion of new money,” said Rosenbluth. “This was equal to the total inflows for the investment approach between 2015 and 2017.”

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