Fixed Income ETFs Weekly Recap (March 14 to 18, 2022)

Fixed Income ETFs welcomed over $6.5 billion in net inflows between March 14th and March 18th and roughly $24.6 billion overall this year.

America-domiciled Fixed Income ETFs had the lion's share garnering $5.4 billion of the total net inflows. Meanwhile, Europe-domiciled Fixed Income ETF witnessed received $1.02 billion after witnessing outflows of -$1.4 billion in the prior week.

The search for yield has been a constant catalyst for this product segment with no end in sight for the Russia-Ukraine war. Also weighing on the markets is the changing monetary policies amid rising inflation. Last week, the U.S. central bank lifted its benchmark Federal Funds Rate by 0.25% and signalled six more hikes this year.

By notching up rates, the Fed is indirectly – through banks – raising borrowing costs in the hopes of easing consumer demand that may be pushing prices higher. This process affects the bonds markets since higher interest rates mean lower prices for existing bonds. Consequently, the changes will trigger a reshuffling of fixed income investors' strategies which can be visible through tracking fund flows into Fixed Income ETFs.

America's Fixed Income ETFs top fund action

Among the top inflows receivers last week were iShares iBoxx $ High Yield Corporate Bond ETF (HYG, $1.14 billion), iShares 20+ Year Treasury Bond ETF (TLT, $619 million), and iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB, $457 million).

HYG, the largest recipient, seeks to track the Markit iBoxx USD Liquid High Yield Index and invests in U.S. denominated high-yield corporate bonds. In terms of sector exposure, consumer cyclical has the highest weighting (19.6%), followed by communications (18.5%), consumer non-cyclical (14.9%) and energy (12.08%). 27% of the underlying corporate bonds have a maturity of 7-10 years, 24.3% have 3-5 years, and 23.4% have 5-7 years. More than half of the constituents are BB-rated, 34.4% B rated, and 10% CCC rated. HYG has a total expense ratio of 0.48% and trades primarily on the NYSE Arca.

On the other side of the fund flows spectrum, Schwab U.S. TIPS ETF (SCHP, -$203 million), iShares Short Treasury Bond ETF (SHV, -$184 million), and Vanguard Total Bond Market ETF (BND, -$175 million) were among the biggest flow bleeders last week.

SCHP seeks to track the Bloomberg US Treasury Inflation-Linked Bond Index (Series-L) and invests in the overall maturity spectrum of the U.S. TIPS market. SCHP has a total expense ratio of 0.05% and trades primarily on the NYSE.

Europe's Fixed Income ETFs top fund action

Among last week's most popular Fixed Income ETFs in Europe were iShares Core € Corp Bond UCITS ETF (IEAC, $328 million), iShares J.P. Morgan $ EM Bond UCITS ETF (SEMB, $244 million), and iShares € High Yield Corp Bond UCITS ETF (IHYG, $201 million).

The top recipient IEAC seeks to track the Bloomberg Euro Corporate Bond Index and invests in Euro denominated investment grade corporate bonds (56% BBB rated, 37% A Rated) issued in various countries, including France (20.44%), the United States (19%), Germany (13.95%) and the United Kingdom – among other. Around 29% of the bonds are issued by companies in the banking sector, 14% by companies operating in consumer non-cyclical and the rest is spread across other sectors. 28% of the underlying bonds mature in 3-5 years, 20% in 5-7 years, 17% in 7-10 years, and 14% in 2-3 years.

The fund has a total expense ratio of 0.2% and trades on multiple European exchanges such as the London Stock Exchange (IEAC, EUR or IEBC, GBP), the SIX Swiss Exchange (IEAC, CHF), the Euronext Amsterdam (IEAC, EUR), the Deutsche Boerse Xetra (EUN5, EUR) and the Borsa Italiana (IEAC, EUR).

Among the least popular last week were iShares China CNY Bond UCITS ETF (Dist) – USD (CNYB,-$291 million), iShares China CNY Bond UCITS ETF USD (Acc) – USD (CYBA,-$183 million), and iShares Fallen Angels High Yield Corp Bond UCITS ETF (WING, -$131 million).

CNYB and CYBA seek to track Bloomberg China Treasury + Policy Bank Index and invest in CNY denominated investment-grade bonds issued by the Chinese treasury and policy banks. They both have a total expense ratio of 0.35% and trade on multiple European Exchanges.

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