Driven by strong flows in the quarter, Market Vectors Emerging Markets High Yield Bond ETF recently eclipsed the USD200m assets under management mark, according to Van Eck Global, the fund’s sponsor.
Additionally, another fixed income ETF in the Market Vectors family, International High Yield Bond ETF has seen its asset base increase to USD257m as of 31 March 2013, up from USD210m at the end of last year.
“It is not the much anticipated ‘Great Rotation’ into equities we see, but rather investors starting to move assets between sub-sectors of fixed income, seeking out the shorter end of the yield curve and diversifying the kinds of instruments they hold,” says Fran Rodilosso (pictured), fixed income portfolio manager at Market Vectors ETFs.
“The recent flows that we have seen suggest that investors are not giving up on bonds, but they are making a significant change in how they allocate to the asset class,” Rodilosso says. “Short-term high yield, emerging markets credit and floating rate funds have gained significant assets during the quarter. At the same time, some US-centric high-yield ETFs have seen fairly large outflows.”
Rodilosso believes that using a variety of tools to shorten duration makes sense given the uncertainty about the Federal Reserve’s ability to manage an eventual reversal of its present, highly expansionary monetary policy and asset purchase programmes. Adding diversification within the high-yield universe also makes sense.
“Currently, high yield is already shorter duration than investment grade debt on average,” Rodilosso says. “Many investors remain more comfortable with credit risk than they are with interest rate duration risk, as evidenced by the continuing demand for high yield in general.”
Rodilosso says short-term high yield and bank loans are not the only areas where there have been positive flows, citing the recent inflows into Market Vectors Emerging Markets High Yield Bond ETF and International High Yield Bond ETF.
“A more pronounced rotation into equities may still be ahead of us,” Rodilosso says. “But in the meantime, it appears that many investors are actively repositioning their fixed income portfolios for an anticipated higher interest rate environment.”