It’s well-known among investors that US equity markets have gotten off to a pretty rough start here in 2014. Because of that being the case, there is much higher interest in fixed income securities resurfacing this year. Almost all bond ETF’s struggled in 2013 to keep up with the quick pace of the equity market and, by the end of the year, many funds were in the red. Now that the Federal Reserve has begun to taper their massive bond buying purchases however, a lot of investors are beginning to return to this once coveted asset class.
Fixed Income makes a Return
Long heralded as key diversification agents, the income securities are also excellent source of current income. Investors hungry for more yield however were forced to turn to other corners of the market after the central bank started implementing a number of stimulus policies that ended up keeping interest rates close to zero. These included REITs, MLPs and dividend paying stocks.
Investors have been drawn back to what is considered a safe haven asset class in 2014 due to a combination of the aforementioned tapering by the feds as well as a recent spike in volatility. Because of this, there are a number of bond ETF’s net have, so far, seen impressive inflows so far this year. (The data below is as of 2/14/14)
- 1-3 Year Treasury Bond ETF (SHY, A)
- 3-7 Year Treasury Bond ETF (IEI, A-)
- Ultra 7-10 Year Treasury ETF (UST, B+)you will
- Total Bond Market ETF (BND, A)
- 1-3 Year Credit Bond ETF (CSJ, A-)
- 20+ Year Treasury Bond ETF (TLT, B)
Some of the best inflows so far in 2014 had been seen by treasury bond funds. Vanguards Total Bond Market ETF is also quite popular. All bond funds aren’t doing as well as these of course and one of the most popular, the iBoxx $ High Yield Corporate Bond ETF (HYG, A), will actually see 1.83M of outflows.
What’s the Bottom Line
What the year-to-date flow data shows so far this year is that investors have had a crucial shift in their mentality from 2013. As investors begin to return to this “safe haven” asset class due to monetary policy changes and recent market volatility, Bond ETFs are becoming more attractive once again. Tapering from the Feds is expected to continue to the year, meaning that we might still see fixed income securities gaining more traction sometime in the near future.