Investors Just Can't Get Enough Of Bond ETFs

At the halfway point of 2016, it is starting to sound like a broken record, but advisors and investors are enthralled by fixed income exchange-traded funds. Year-to-date, four of the top 10 asset-gathering ETFs are bond funds and investors are pouring into plenty of others that are outside the top 10.

While the numbers for June are not yet finalized, market participants know investors added $4.2 billion to bond ETFs in May, bringing the year-to-date total to $42 billion as of May 31. With the Federal Reserve still holding off on raising interest rates, U.S. government bond and aggregate bond ETFs, which are often heavy on Treasurys, have been among investors' fixed income destinations.

“Fixed income ETFs are on a record-setting pace this year, amassing $20 billion more than the same time last year. Additionally, these bond exposures have taken in $40 billion more than equities so far in 2016 despite the fact that equity ETF assets under management outnumber fixed income assets by nearly $1.3 trillion,” said State Street Vice President David Mazza in a note out Thursday.

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State Street's State Street Global Advisors (SSgA) sponsors an expansive lineup of fixed income ETFs, including some that are rapidly growing this year. For example, the SPDR DoubleLine Total Return Tactical ETF TOTL, bond king Jeff Gundlach's first foray into ETFs, has added over $711 million in new assets this year. Now just 16 months old, TOTL is home to over $2.6 billion in assets under management and could soon become the largest actively managed fixed income ETF.

Are These ETFs 'Einstein Babies'?

While many of this year's crop of new ETFs are floundering, the SPDR DoubleLine Emerging Markets Fixed Income ETF EMTL is off to a solid start. EMTL is just two and a half months old and already has over $38 million in assets under management.

The SPDR DoubleLine Short Duration Total Return Tactical ETF STOT, TOTL's short duration equivalent, came to market on the same day as EMTL and now has $50.3 million in assets.

“The search for yield could be prolonged if we face a 'lower for longer' environment where the Federal Reserve (Fed) — worried about uneven US economic data and global events, such as Brexit — delays future rate hikes. Even when the Fed raises rates, we expect those hikes to be very low and slow. Since the Fed last hiked rates in December, the US 10-year yield has fallen 31 percent,” added Mazza.