European investors seek refuge in Investment Grade Bond ETFs

Investors in Europe turn to short-term Bond ETFs  

Fixed income ETFs continue to prove popular with investors. Europe-domiciled bond ETFs registered net inflows of USD$1 billion[1] between 5-9th September - marking the eighth week in a row of inflows according to Trackinsight’s fund flow data. And on the returns side, there was a reversal of the negative performance streak which has impacted the asset class since early August. Bond ETFs posted 0.3% of gains on average, compared to the previous week’s 1.49% of negative returns.    

ETFs tracking government bonds pulled in the highest inflows in the fixed income universe attracting USD$611 million of investor money - almost double that of the prior week’s inflows of USD$396 million. Meanwhile, we saw a u-turn in investor interest in corporate bond ETFs, which netted USD$351 million in inflows after losing USD$160 million worth of investments a week before.  

On a credit rating level, investment grade ETFs appealed the most to European investors, attracting the lion’s share of flows with USD$1 billion of new investment. High yield ETFs meanwhile, registered almost USD$82 million in net inflows over the same period, after losing money on a weekly basis for almost a month.  

As rising rate environments become the new normal, uncertainty is finding its way back into the investing scene. Unprecedented levels of inflation – together with the aggressive response measures many Central Banks have adopted - and geopolitical tensions across the globe are weighing down on economic growth and global supply chains. These factors combined are leading to many investors increasing their cash holdings or allocating to short-duration fixed income vehicles particularly in light of the Federal Reserve’s next rate hike which is projected to be three-quarters of a percentage point. 

This week’s top flow receiver was the short duration bond ETF Xtrackers II iBoxx Eurozone Government Bond Yield Plus 1-3 UCITS ETF (XYP1M). The fund has an average duration of 1.94 years and attracted USD$201 million of investor money. Conversely, the iShares $ Treasury Bond 20+yr UCITS ETF (IDTL) with an effective duration of 17.87 years saw significant outflow of USD$145 million.

Top 5 flow receivers last week:

• Xtrackers II iBoxx Eurozone Government Bond Yield Plus 1-3 UCITS ETF (XYP1M): USD$144 million
• iShares $ Corp Bond UCITS ETF (LQDE): USD$198 million
• iShares $ Corp Bond UCITS ETF (LQEE): USD$156 million
• iShares $ Treasury Bond 7-10yr UCITS ETF USD (Acc) (CSBGU0): USD$135 million
• Lyxor Smart Overnight Return - UCITS ETF (SMART): USD$123 million

Please note this article is for information purposes only and does not constitute investment advice.

[1] Fund Flow Data as of September 9th, 2022.