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Fixed income dominates first quarter ETF inflows says BlackRock

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Reporting on the first quarter of 2016, Stephen Cohen, Head of Fixed Income Beta at BlackRock asks if 2016 is a tipping point for bond ETFs, with the first quarter of 2016 proving to be a record quarter for global use of fixed income ETFs, on top of global industry inflows of USD43.5 billion and global iShares inflows of USD27.8 billion. 

Cohen reports that the first quarter of 2016 was a landmark quarter for fixed income ETFs, one in which BlackRock saw record inflows into global (USD43.7 billion) and US (USD31.8 billion) fixed income ETFs, as well as the  global iShares (USD27.8 billion) and US iShares (USD19.7 billion) fixed income ETFs.  Cohen writes that the record flows demonstrate the structural growth of fixed income ETFs, driven by broader adoption across a range of investor types.
 
The BlackRock reports finds that the first six weeks of 2016 were dominated by significant flows into government bonds. “This was a reflection of the broader risk-off environment amidst market uncertainty and concerns over economic growth,” their report states.
 
The second week of February saw overall market sentiment turn with fixed income ETF flows reflecting the ‘risk on’ appetite of investors. “Markets saw heavy inflows into corporate bond ETFs as well as emerging market debt.  In addition to the general turn in sentiment, the increased global demand for credit ETFs was driven by demand for yield on expectations of Bank of Japan and European Central Bank (ECB) easing,” the report says.
 
Turning to the regional perspective, the report finds that there has been a surge in trading volumes across the US iShares fixed income ETFs in the first quarter. Trading volumes in HYG (the iShares iBoxx $ High Yield Corporate Bond ETF), for example, have risen significantly, going from USD657 million per day in Q3 2015 to USD996 million per day in Q4 2015 and to USD1.2 billion per day Q1 2016.  
 
The report says that many investors turned to HYG for the first time in December 2015 to gain liquid high yield bond exposure during the volatile market period, and that in the months that followed, many investors that first started using HYG during this period have continued to stay with the product.
 
BlackRock reports that records have been broken in EMEA. March was a record breaking month in EMEA, with March 21 seeing the biggest fixed income ETF trading day ever recorded.  The firm saw strong inflows (USD7.8 billion) across their fixed income ETF product set, but particularly investment grade and high yield corporate ETFs as investors shifted towards using iShares FI ETFs to add risk in their portfolios.  
 
The report writes that the major catalyst for EMEA’s record breaking March was the expectation – and then realisation – of the ECB’s latest QE policy, with Draghi adding corporate bond purchases to the asset purchase program. This drove a sharp tightening of credit spreads and inflows into European corporate bonds, including ETFs. 
 
Looking forward to the next quarter of 2016, Black Rock believes that the environment for fixed income ETF growth remains very positive. The firm writes: “On a macro level, following the recent tightening in credit spreads we may see flows into credit products start to slow down after a strong March. However, the reality of negative interest rate policies in Japan and the Eurozone will still drive cross-border flows in search of positive yields.
 
“The landmark first quarter of 2016 again shows that the structural growth of fixed income ETFs continues to accelerate, driven by broader adoption across a range of investors and rising trading volumes.”
 
 

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