Europe's Fixed Income ETFs losing assets

Fixed income ETFs domiciled in Europe suffered significant net outflows over the course of last week. According to Trackinsight’s fund flow data, outflows across the asset class – including government bond ETFs and corporate debt ETFs - totaled USD$720 million, making this the first week of negative net flows following several conservative weeks in positive territory. The asset class also registered an average negative return of 3.44% between September 19th and 23rd.

ETFs tracking government bonds were the biggest losers in the fixed income space, with negative flows of USD$402 million, almost double that of the previous week of USD$180. Similarly, ETFs investing in government agencies, supranational, and municipal bonds witnessed aggregate net outflows of USD$102 million over the week. Corporate bond ETFs also fell out of favor with investors, losing USD$360 million in assets, a significant u-turn on the previous week which saw positive flows of USD$530 million. 

As the U.S. Federal Reserve hiked interest rates to the highest level since 2008’s meltdown, the pressure weighed down on Fixed Income ETFs. Only investment grade bond ETFs ended up in positive territory attracting USD$89 million of net inflows - a possible flight to safety in response to the Fed’s decision.  

Fund flow data shows that investors eschewed longer dated and lower quality bonds for shorter dated and higher quality offerings, with short duration investment grade ETFs dominating the top ten receivers of the week. The trend can be attributed to the fact that short duration products allow investors to pick up more yield in a rising rate environment, without exposing their portfolios to higher risk securities such as high yield bonds. 

This week’s top flow receiver was the short duration bond ETF iShares € Govt Bond 1-3yr UCITS ETF EUR (Acc) (CSBGE3). This investment grade bond ETF tracks the performance of an index composed of government bonds from France, Germany, Italy, Netherlands, and Spain. With a short duration averaging 1.68 years it has attracted USD$180 million of investor money. Conversely, the iShares € High Yield Corp Bond UCITS ETF (IHYG) investing in high yield Euro denominated bond securities saw significant outflows of USD$80 million.

Top 5 flow receivers last week:

1. iShares € Govt Bond 1-3yr UCITS ETF EUR (Acc) (CSBGE3): $USD180 million
2. Xtrackers II iBoxx Eurozone Government Bond Yield Plus 1-3 UCITS ETF (XYP1M): USD$115 million
3. iShares € Corp Bond 0-3yr ESG UCITS ETF (IE3E): USD$97 million
4. BNP Paribas Easy € Corp Bond SRI PAB 1-3Y UCITS ETF (SRIC3): USD$96 million
5. BNP PARIBAS EASY JPM ESG EMU GOVERNMENT BOND IG 3-5 Y (GEMU): USD$67 million

Disclaimer: This article is limited to the dissemination of general information pertaining to investment strategies and financial planning and does not constitute an offer to issue or sell, or a solicitation of an offer to subscribe, buy, or acquire an interest in, any securities, financial instruments or other services, nor does it constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment.