Fixed-income ETPs attract record monthly inflows

Investors clearly remain strongly divided about where to put their money, if exchange-traded product data set to be released today by BlackRock is any indication. Emerging-market, North American equity and fixed-income ETPs all saw substantial inflows in January.

Fixed-income ETPs continued where they left off last year by attracting record global monthly inflows of $9.1 billion. The category captured 27% of total January inflows, which is uncharacteristically high for a month with large overall inflows, says the US fund house.

Since 2005, there have been 14 months where new assets exceeded $20 billion, and fixed income on average comprised 11% of flows during those months.

These record net inflows were chiefly driven by investment-grade and high-yield corporate bond products, which gathered $3 billion and $4 billion, respectively. The combined $7 billion represents a four-fold increase over the average monthly flows last year of $1.7 billion for these ETP asset categories.

Moreover, fixed-income ETPs expanded at the fastest rate of all ETP types globally during 2011, with a 24% year-on-year rise of $50.6 billion to $258 billion, driven almost entirely by cash inflows of $49.8 billion. That net inflow surpassed the figure of $40 billion collected in 2010 and was largely driven by US-listed products.

Meanwhile, emerging-market equity ETPs drew $6.6 billion of inflows in January, following the latter half of 2011 in which four of the six months saw net redemptions. However, Asia-Pacific equity ETPs experienced negligible positive inflows.

Not surprisingly, investors were net sellers of European equity ETPs, which saw outflows of $106.5 million last month, compared with $2.1 billion of inflows in January 2011.

North America equity ETPs was the category with the highest flows, attracting $14.6 billion, with large-cap equity products accounting for the lion’s share with $5.9 billion. This reflected a general increase in risk appetite and renewed confidence in low, but steady US economic growth, according to BlackRock.

“We see a quiet revolution building in the [fixed-income] asset class, as more and more investors learn how to use fixed-income ETFs (exchange-traded funds) to build portfolios that combine low risk with the potential for yield,” says Peter Fisher, head of fixed income portfolio management at BlackRock.

Nick Good, Asia-Pacific head of BlackRock’s iShares ETF unit, says investor understanding of fixed-income ETFs and their benefits is growing. In addition, iShares expanded its fixed-income offering in Singapore late last year, he notes, and a recent rule change to permit the stock exchange listing of fixed-income ETFs in Australia “will create some strong opportunities there”.