Fixed Income ETFs Rise in Q1


Against the backdrop of a stock market that keep rising and interest rates that appear to be stable, albeit for the moment, fixed income exchange-traded funds (ETFs) were the best performing in March.

Matthew Bartolini, State Street Global Advisors.

Investors poured $34.5 billion into fixed income ETFs during Q1, according to the most recent US-Listed Flash Flows Report from State Street Global Advisors. Bond funds are now breaking records and making headlines, began Matthew Bartolini, Head of SPDR Americas Research at State Street Global Advisors. Fixed income ETFs have taken in $34.5 billion to start the year, the highest flow total ever for a first quarter, narrowly beating out the hot start to 2016. In March they took in $10.4 billion in new cash.

“The $34.5 billion represents an increase of 5.2% of fixed income ETFs start-of-year assets. If bond funds are able to maintain this pace, it would lead to over $130 billion of fund flows – a figure that would represent new all-time record and likely push total assets over $800 billion for the first time,” Bartolini said. ”The resurgence in equity allocations along with persistent flows into bond funds portends a market environment where investors are seeking to participate in the rally, while modulating a portfolios overall risk level in case volatility returns and upends the equity market’s current trajectory.”

Within the fixed income sector, mortgage-backed ETFs continue to be favored by investors – with nearly $5 billion allocated to the funds in Q1 2019.

Equities No Slouch

While the fixed-income market was all the rage, according to Bartolini, equity ETFs didn’t exactly underperform. Global equities posted their 11th best quarter over the last 30 years, and their best first quarter since 1998. Equity funds received the most flows in the month of March, pulling in $19 billion and pushing their year-to-date total finally positive. Combined with the $15 billion from February, equity funds have now taken in more than $30 billion in the last two months. Bartolini said this was not surprising given how global equities have rallied off of December 2018 lows and central banks have reaffirmed a more accommodative stance.

With $18 billion of inflows in the month of March, US-focused equity ETFs now have taken in the most inflows for two consecutive months out of any other geographical focus. This has pushed their year-to-date total positive after a tough January, Bartolini said, and the recent influx of cash to the US can be partly attributed to the technical environment becoming more favorable.

“The S&P 500 Index broke through, and maintained above, its 200-day moving average in March. And based on a technical trend following dual momentum strategy, the US in March became the only region – compared to developed ex-US and emerging markets – with a trailing 12-month return greater than US 3-month T-bills,” explained Bartolini.

The positivity in the US doesn’t mean other regions were ignored, he added. According to his data, March was the fifth straight month of inflows for emerging market funds, a segment that still leads year-to-date on flows as the year started out with an eye-popping $8 billion of inflows in January and now saw $869 million in March. In looking deeper at March, while single-country funds had net outflows, ETFs with a specific focus on Chinese equities took in $1.3 billion in March. The outflows in single-country funds were dominated by Japan, with $3.3 billion leaving the region during the month.

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