Trackinsight: Taste disparity between Fixed Income ETFs investors

Regional breakdown of Fixed Income ETFs net flows in 2022.

Investors have poured over $18 billion (net) globally into Fixed Income ETFs this year in their constant search for yield and a safer place to park their wealth amid rising macroeconomic and geopolitical turmoil.

America-domiciled Fixed Income ETFs received $13.73 billion, Europe-domiciled drew $3.57 billion, while APAC-domiciled got the rest ($1.32 billion). A certain disparity can be seen in the fund flows when the destination is broken-down by ETF's underlying stated bond maturity.

The discrepancies could be attributed to the difference in the dynamics of the U.S. and the European economies and their respective stance on fighting inflation. On Wednesday, The U.S. central bank lifted its benchmark Federal Funds Rate by 0.25% and signalled six more hikes this year.

By notching up rates, the Fed is indirectly – through banks – raising borrowing costs in the hopes of easing consumer demand that may be pushing prices higher. This process affects the bonds markets since higher interest rates mean lower prices for existing bonds. These changes in monetary policies will affect investors' portfolios and thus entice them to make moves.

Investors in America are focusing on short-term maturity

Out of the $22.3 billion injected (inflows only) in America-domiciled Fixed Income ETFs, 50% went into pure money market funds or funds with a mix of money markets and short-term bonds. Among the most popular funds in these categories in 2022 are iShares Short Treasury Bond ETF (SHV, $2.8 billion), iShares Floating Rate Bond ETF (FLOT, $1.79 billion), and iShares 0-5 Year TIPS Bond ETF (STIP, $1.44 billion)

On the other hand, pure short-term and pure long-term fixed income ETFs netted $1.86 billion and $1.61 billion respectively year-to-date.  Popular pure long-term fixed income this year include Vanguard Long-Term Government Bond ETF (BLV, $1.73 billion), SPDR Portfolio Long Term Treasury ETF (SPLT, $1.3 billion), and iShares 10-20 Year Treasury Bond ETF (TLH, $889 million). Meanwhile, iShares 1-3 Year Treasury Bond ETF (SHY, $1.55 billion), Vanguard Short-Term Corporate Bond ETF (VCSH, $1.32 billion), and iShares Short-Term National AMT-Free Muni Bond ETF (SUB, $1.04 billion) were among the most targeted by investors in pure short-term fixed income ETFs.

European Fixed Income investors are favoring

On the other hand, European investors have favored pure intermediate-term Fixed Income ETFs, adding $1.73 billion this year into this category. Long-term came in second with $922 million, and funds with a mix of money markets and short-term bonds — were third most popular — receiving $780 million.

Invesco US Treasury Bond 7-10 Year UCITS ETF (TREX, $643 million), Invesco US Treasury Bond 7-10 Year UCITS ETF (TRDE, $342 million), Xtrackers II Eurozone Government Bond 5-7 UCITS ETF (X57E, $302 million) were among the among most popular European Fixed Income ETFs with intermediate-term bonds exposure.

Meanwhile, iShares $ Treasury Bond 20+yr UCITS ETF (IDTL, $584 million) and iShares $ Treasury Bond 20+yr Hedged CHF UCITS ETF (D) – CHF (DTLC, $171 million) were the biggest go-to funds for long-term bonds ETFs investors.

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