Even as investors poured money into the big corporations that issued these bonds, investment grade corporate bond exchange-traded funds (ETFs) had their second-highest monthly withdrawals ever recorded in September.
According to BlackRock’s research, net outflows from investment grade credit ETFs totaled roughly $4 billion. The majority of these outflows came from US-listed funds, however European peers had $0.6 billion in withdrawals.
This level of outflows has only been surpassed once before, in March 2020, when investment grade ETF outflows reached $5.1 billion. Investors, on the other hand, poured $35.1 billion into US stock ETFs, more than tripling the $11 billion reported in August. A considerable chunk of this money, $30.7 billion, was directed toward US large-cap exposure, basically supplying funding to many of the same corporations that had issued the investment grade bonds they were selling.
It’s unclear if the same institutional investors were involved in both actions,” Chedid said. He emphasized several factors driving various areas of the ETF market.
Chedid said that although corporate credit ETFs experienced withdrawals, government bond ETFs, popularly known as “rates” ETFs, witnessed $16.9 billion in inflows. He saw that investor behavior in fixed income ETFs had become more granular, with variable expectations across markets.
However, in September, there was a flight to safety due to fears of a probable US government shutdown. Investors preferred short-term Treasury ETFs such as the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL), which received $1.5 billion, and the iShares 0-3 Month Treasury Bond ETF (SGOV), which received $1.2 billion. In contrast, the “higher risk” iShares iBoxx $ Investment Grade Corporate Bond ETF experienced net outflows of $1.2 billion.
Investors chose to protect their capital rather than seek additional income opportunities,” he noted. For example, investors could have fled US equities, but instead shifted their focus to higher-quality, large-cap US firms.
The different use cases for fixed income ETFs were highlighted by MJ Lytle, CEO of Tabula Investment Management, which specializes in bond ETFs. He underlined that providers had developed mechanisms that allow investors to enter and exit the market. As a result, “investment grade bond ETFs could be used to express a point of view,” he explained.
According to BlackRock data, high-yield and developing market debt ETFs saw outflows of $1.8 billion and $1.5 billion, respectively.
Despite considerable capital flows into and out of fixed income ETFs in September, Rosenbluth observed that adoption of these products remained high.
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