Displaying items by tag: inflows
Cerulli Survey: Institutional Investors Increasing Active Allocations
Based on Cerulli Associates' research analysis of mutual fund and exchange-traded product trends in January, institutional investors expect to increase allocations to active investment strategies. According to the data, while mutual funds lost $1.9 billion to start 2023, a few asset classes are generating positive inflows. For instance, taxable bond mutual funds added more than $15 billion of inflows during January, while municipal bond mutual funds added $7.7 billion during the month. This bucked the trend in 2022 in which outflows were $148.7 billion. The release from Cerulli stated, “The gap between active and passively managed funds hit new lows in December 2022; however, [the] Cerulli survey [shows], most institutional investors still want a majority of their portfolios to be actively managed. A noteworthy number of institutional investors indicate increasing their allocations to active strategies in equities (28%) and fixed income (20%).” The release also stated that “Although mutual funds closed 2022 on a “sour note,”—having dropped 4.5% in December—they have so far reversed course in 2023, with assets climbing 5.8% to $17.2 trillion.” The report noted that the data was based on a survey administrated in the second quarter of 2022.
Finsum:According to the results of a recent Cerulli Associates report, institutional investors plan to increase allocations to active strategies as taxable bond mutual funds and municipal bond mutual funds saw a combined $22.7 in inflows during January.
Investors Piling into High-Grade Corporate Bonds in Record Numbers
Investors are piling into the investment-grade market at a record rate due to higher yields and concerns over riskier debt. A total of $19 billion has been poured into funds that buy investment-grade corporate debt since the start of 2023. That marks the most ever at this point in the year, according to data from fund flow tracker EPFR. The money pouring into the asset class underscores an eagerness among investors to buy historically high yields provided by safer corporate debt after years of investing in riskier debt in search of returns. According to Matt Mish, head of credit strategy at UBS, “People basically think that fixed income, in general, looks a lot more attractive than it has in prior years. The euphoria around investment grade is basically more broadly this euphoria around yields. At least relative to last year and really relative to most of the last decade, [high-grade corporate debt] is offering yields that are considerably higher.” For instance, average US investment grade yields have jumped to 5.45% from 3.1% a year ago. The soaring yields come as a result of the broad sell-off in fixed income over the past year as the Federal Reserve rapidly lifted interest rates to help tame sky-high inflation.
Finsum: Investors are piling into investment-grade bond funds due to historically high yields on safer debt after years of investing in riskier debt in search of returns.
Why Fixed Income ETFs are Bouncing Back
Last year was a dismal year for fixed-income funds as bonds had their worst year on record. But this year, bonds are regaining steam partly due to an inverted yield curve. Fixed-income ETFs saw roughly $26 billion in inflows last month. Todd Rosenbluth, head of research at VettaFi, told Mike Santoli on CNBC’s “ETF Edge” that “There’s now income within the fixed income ETFs that are available. We’ve seen higher-quality investment-grade corporate bond ETFs. We’ve seen high-yield fixed-income ETFs see inflows this year, as well as some of the safer products.” For example, the 10-year Treasury yield was trading at 3.759%, while the yield on the 2-year Treasury rose to 4.644% on Wednesday. In addition, the yield on the 6-month Treasury hit 5.022%, its highest level since July 2007. With yields at their highest in decades and lofty stock valuations, investors are looking for areas of strength in the market. In the same ETF Edge segment, James McNerny, portfolio manager at J.P. Morgan Asset Management, added “When we break down the flows that we’re seeing, we’re seeing flows into higher-quality, longer-duration products, and credit products on the front end of the curve. Those have been the lion’s share of the majority of the flows that we’ve seen.” Jerome Schneider, managing director at Pimco, told CNBC “That fixed income funds are gaining popularity because they offer investors attractive yields in an uncertain economic environment.”
Finsum:With yields at their highest in decades, bond ETFs are seeing strong inflows as investors seek income in an uncertain economic environment.
Why Investors Flooded Fixed Income ETFs in January
Last month, fixed-income ETFs saw more inflows than equity ETFs. Elisabeth Kashner, director of global fund analytics at FactSet said in a phone interview with MarketWatch that “You don’t see that every day. That’s kind of a big deal.” According to Kashner, fixed-income ETFs brought in around $23.7 billion in January, while equity ETFs raked in a total of $22.9 billion. In 2022, rates rose quickly amid sky-high inflation. Due to this, investors embraced more “targeted products” than broad fixed-income funds, according to Kashner. This continued into January as the Schwab Short-Term U.S. Treasury ETF (SCHO) and the iShares 20+ Year Treasury Bond ETF (TLT0) were among the top 10 funds for inflows. Kashner noted that the Schwab Short-Term U.S. Treasury ETF “is what you buy defensively if you want to be in high-quality” fixed income “but you don’t want too much duration exposure,” due to concern about rising rates. She also said that the “iShares 20+ Year Treasury Bond ETF, which provides duration exposure, tends to attract investors worried about a recession.” Other fixed-income ETFs that saw strong inflows last month include the iShares JP Morgan USD Emerging Markets Bond ETF (EMB) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), according to FactSet data.
Finsum:Fixed-income ETF inflows outpaced equity ETF inflows last month as investors continued to embrace more targeted fixed-income products amid high inflation.
Investors Jumping into Bond ETFs to Start the Year
Last week, over $10.2 billion went into U.S.-listed ETFs, with the majority going into fixed-income funds. Bond ETFs pulled in $4.5 billion according to ETF.com data. This followed the previous week’s $7.8 billion in inflows that went into bond funds. In the first week in January, fixed-income products pulled in $9.4 billion, a jump from $1.5 billion in the last week of December. Investors are flocking to fixed-income exchange-traded funds as recession warnings ring louder. Investors are jumping from stocks to bonds as they are often seen as a safer investment during economic downturns. Earlier in the month, Bloomberg News reported that Wall Street firms are sounding the alarm for a recession in 2023. BlackRock’s Investment Institute stated that “a recession is foretold,” while Barclays is predicting “one of the weakest years for the world economy in 40 years.” This also comes after multiple Fed officials have predicted interest rates remain elevated for the foreseeable future. Federal Reserve Bank of San Francisco President Mary Daly said in a streamed interview with the Wall Street Journal a couple of weeks ago that “I think something above 5[.0%] is absolutely, in my judgment, going to be likely.” Her comments come a week after Minneapolis Fed President Neel Kashkari stated that the “central bank’s so-called terminal rate could reach as high as 5.4% before easing,” in a post on Medium.
Finsum:As Wall Street firms sound the alarm on a potential recession, investors are flocking to fixed-income ETFs, which are seen as safer investments during economic downturns.