Industry Updates

ETF investors start to put risk on the table amid Fed support

Tom Eckett

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Investors have thrown caution to the wind over the past week by moving further down the credit spectrum and into longer duration products, a sign the Federal Reserve’s response has calmed spooked markets.

According to data from Ultumus, three of the top five ETFs listed in Europe to see the biggest outflows in the week to 10 April were short-dated bond products.

The iShares € Corp Bond ex-Financials 1-5yr UCITS ETF EUR (IEX5), the iShares $ Treasury Bond 1-3yr UCITS ETF (IBTS) and the iShares € Corp Bond 1-5yr UCITS ETF EUR (IE15) saw outflows totalling $510m over the week.

Furthermore, investors, boosted by the Fed’s bond-buying programme, rotated into corporate bond ETFs over same period.

Some four of the top 10 European ETFs in terms of inflows were corporate bond products with investors piling $831m into the iShares $ Corp Bond UCITS ETF (LQDE) alone, the most across all ETFs in Europe.

In total, $1.8bn flowed into these four ETFs, a sign investors are less concerned about the long-term impact of coronavirus with the US central bank propping up markets.

This is the first time in its history the Fed will purchase corporate bonds as part of potentially unlimited quantitative easing measures, a move which did not occur during the Global Financial Crisis in 2008.

Last week, the central bank subsequently announced further plans to support the market expanding its buying programme to credit that has recently been downgraded to junk.

Hinesh Patel, portfolio manager at Quilter Investors, added: “It takes time for central bank stimulus to feed through to the real economy, with US support still a couple of weeks away from showing signs of its desired effect.”

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