This article was originally published on ETFTrends.com.
Last month marked the official start of summer, and while the majority are flocking towards activities to take advantage of the warmer weather, they're also moving into markets that are heating up, such as fixed-income ETFs.
According to data from State Street, a substantial number of investors flocked to bond ETFs--while equity and commodity ETFs posted net outflows $5.8BN and $2.1BN respectively in June, fixed income ETFs attracted $7.4BN of inflows during the month. This officially marks the 35th consecutive month of inflows for bond ETFs.
Invesco Sees Opportunity in Fixed-Income Inflows
With the exodus of investors from safer haven investments, such as government debt and into higher-return yields like corporate bond ETFs, investment management companies like Invesco are quick to offer ETF products that appease the appetite for investment-grade, high-quality debt.
"Despite the outflows, fundamentals in the high yield market appear strong," Tim Urbanowicz, Senior Fixed Income ETF Strategies at Invesco told ETFTrends.com. "So far in 2018, we are seeing many investors rotating out of traditional high yield vehicles and into defined maturity ETFs in the Invesco BulletShares suite."
Invesco offers high-yield fixed-income ETFs with their BulletShares Corporate Bond Portfolios and for investors, the BulletShares High Yield Corporate Bond Portfolios. In addition to the higher yield, the ETFs also carry interest rate hedging since the bonds are typically held until maturity.
"By using defined maturity high yield ETFs like the Invesco BulletShares High Yield ETFs, investors are able to capitalize on the incremental carry offered by high yield, but potentially reduce the impact of spread widening or rising rates if they occur as the bonds are typically held to maturity," said Urbanowicz.
Thus far, BulletShares have been taking aim on returns and the results are on point--for example, Invesco BulletShares 2018 HY Corp Bd ETF (BSJI) is up 1.29 percent year-to-date and 2.82 percent the last three years. Invesco BulletShares 2018 Corp Bd ETF (BSCI) is up 0.85 percent for the year and up 1.32 percent the last three years. This is just an inkling of the various ETF products they offer in the high-yield fixed income space.
If the economic data warrants more hawkishness in the Federal Reserve's view when shaping monetary policy, then more inflows into higher-yielding investment vehicles could be the ongoing trend.
"With seven fed hikes in the books since 2015, short term rates have risen rapidly while the long end of the curve has lagged," said Urbanowicz. "To put this in perspective, in 2018, six month rates have risen 38%, one year rates have risen 33%, three year rates have risen 32%, while 10 year rates have only come up 19%. Due to this flattening, investors have been favoring the short end of the curve to maximize their yield per unit of duration."
For more trends in fixed income, visit the Fixed Income Channel.
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