Obvious Winners As Bond ETFs Gain More Assets

Fixed income exchange traded funds are gathering new assets at breakneck speed and with interest rates declining and stocks scuffling, bond funds could lure even more capital from investors.

What Happened

In the first half of this year, fixed income ETFs saw inflows of $74 billion, including a staggering $26 billion in June alone, said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Tuesday.

Year to date, five bond ETFs are among the top 10 U.S.-listed ETFs in terms of new assets added and all five of those funds are iShares or Vanguard products. Based on figures offered by CFRA, nearly 74 cents of every dollar going into a bond ETF this year, is flowing to an iShares or Vanguard fund.

Why It's Important

“While the asset manager is the US ETF industry heavyweight with $1.6 trillion in assets and a leading 39% market share, iShares is even more dominant in the bond asset class with a 49% share,” said Rosenbluth. “Indeed, the gap between iShares and Vanguard and SSGA, the next two largest ETF providers is much wider with bonds than overall.”

Among the top asset-gathering bond ETFs this year are the iShares 7-10 Year Treasury Bond ETF IEF and the iShares MBS ETF MBB, which have taken in about $10.9 billion in new assets combined. Rosenbluth has an Overweight rating on IEF.

Some other issuers do have products that are competitive on the fixed income front. For example, the SPDR Portfolio Intermediate Term Corporate Bond ETF SPIB has hauled in nearly $881 million in new assets this year. Rosenbluth also has an Overweight rating on that ETF.

What's Next

“Vanguard’s 25% bond ETF slice is essentially in line with its take of the broader ETF pie (26%), which makes sense since Vanguard’s line up is often used for asset allocation purposes,” said Rosenbluth.

The top asset adder among Vanguard's bond ETFs this year is the Vanguard Total International Bond ETF BNDX, which has garnered inflows of $5.38 billion, putting it among the top 10 U.S.-listed ETFs overall. BNDX has a 30-day SEC yield of 2.90%.

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