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Why Investors Continue to Flock to Fixed Income ETFs

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  • (1:30) - What Should Investors Expect From The Fed Now?
  • (5:10) - What Caused The Recent Bond Sell Off And What Does It Mean For The Economy?
  • (10:50) - Money Continues To Flow Into iShares 20 Plus Year Treasury Bonds ETF: TLT
  • (13:20) - iShares 0-3 Month Treasury Bond ETF: Will The Popularity of Short Term Bonds Continue?
  • (16:00) - BlackRock Flexible Income ETF: BINC
  • (18:30) - iShares BuyWrite ETF Suite: TLTW, HYGW & LQDW
  • (21:45) - iShares iBonds ETF Franchise With TIPS ETF Suite
  • (24:20) - How Should Investors Reposition Their Portfolios Moving Forward?
  • (27:15) - Episode Roundup: SGOV, TLT, IEI
  • Podcast@Zacks.com

 

In this episode of ETF Spotlight, I speak with Karen Verra, Head of iShares US Fixed Income Strategy at BlackRock. The world’s largest asset manager offers over 424 ETFs in the US markets, including 131 fixed income ETFs, both active and index tracking, across a variety of strategies.

Stocks have been under pressure lately due to concerns that stubborn inflation will compel the Fed to maintain higher interest rates for an extended period. The minutes of the most recent FOMC meeting revealed that a majority of Fed members believe one more rate hike will be necessary.

The sudden, dramatic spike in yields surprised most experts and spooked investors. The benchmark 10-year US Treasury yield is now close to 5%, the highest since 2007. We discuss what caused the recent bond sell-off and its implications for the broader economy.

As yields continue to march higher, losses on long-duration bonds continue to accumulate. The iShares 20+ Year Treasury Bond ETF (TLT - Free Report) is down almost 15% year-to-date and more than 50% from its record high in 2020. Yet, TLT has attracted almost $18 billion in inflows this year.

Over $1 trillion has flowed into money market funds over the past year, thanks to yields above 5% on cash-like securities. Ultra-short bond ETFs also remain popular with investors. The iShares 0-3 Month Treasury Bond ETF (SGOV - Free Report) has garnered over $10 billion year-to-date.

One of the significant themes this year is the rise of active ETFs, which have received an outsized portion of inflows this year. The actively managed BlackRock Flexible Income ETF (BINC - Free Report) offers multisector fixed-income exposure that seeks to maximize income.

iShares launched the industry’s first BuyWrite Fixed Income ETFs last year. These ETFs package two potential income sources: premiums generated by selling monthly call options on the underlying ETFs and the yields from each of the underlying ETFs themselves.

It's been a challenging year for long-term bond investors, and considering the ongoing challenges, BlackRock finds the intermediate part of the yield curve more attractive. Take a look at the iShares 3-7 Year Treasury Bond ETF (IEI - Free Report) . Floating rate bond ETFs like the iShares Floating Rate Bond ETF (FLOT - Free Report) are also worth considering.

Tune in to the podcast to learn more.

Make sure to be on the lookout for the next edition of the ETF Spotlight and remember to subscribe! If you have any comments or questions, please email podcast@zacks.com.

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