Bond ETFs are hot — not as hot as equity ETFs, but hotter than they've ever been.
Seventy billion dollars have flowed into U.S. fixed income ETFs in the first half of this year, suggesting inflows will easily outpace last year's $92 billion, according to Todd Rosenbluth, director of ETF Research at CFRA.
Asset managers are responding to the growing demand by introducing new fixed income ETFs — seemingly a new one every day, says Rosenbluth — and filing with the Securities and Exchange Commission to introduce even more.
Late last week BlackRock launched four new corporate bond ETFs — three investment-grade corporate ETFs, including two with positive ESG ratings, and one high-yield: iShares Edge Investment Grade Enhanced Bond ETF (IGEB), ESG USD Corporate Bond ETF (SUSC), ESG 1-5 Year USD Corporate Bond ETF (SUSB) and iShares Edge High Yield Defensive Bond ETF (HYDB).
Also last week, Nuveen filed a registration statement with the SEC for its first ESG bond ETF, the NuShares ESG U.S. Aggregate Bond ETF, months after it launched a suite of equity ESG ETFs, and Columbia Threadneedle filed with the agency a registration statement for the Columbia Diversified Fixed Income Allocation ETF, a multi-factor smart beta ETF.
Many of the new bond ETFs are smart beta funds, which track indexes that, unlike tradiitional indexes, are not market weighted.
The introduction of these funds is "an extension of the evolution of smart beta" equity funds that asset managers have launched, according to Phillip Yoo, ETF analyst at Morningstar. "They want to replicate that success now in the bond ETF space."
Yoo says demand for bond ETFs is coming not only from retail investors and advisors but also from institutional investors using bond ETFs for more efficient overnight lending and hedging purposes, says Yoo.
