The €11bn iShares Core € Corp Bond UCITS ETF (IEAC) was the only European-listed ETF to post over $1bn inflows last week as a dovish Federal Reserve continues to boost investor appetite for corporate debt.
According to data from Ultumus, IEAC witnessed positive flows of $1.1bn in the week to 28 June, almost $500m more than its nearest rival, the €7.3bn iShares € High Yield Corp Bond UCITS ETF EUR (IHYG), which saw $627m inflows.
A continued dovish Fed is likely the reason for the increasing investor interest in riskier bonds. Last month, the US central bank held rates between 2.25% and 2.5%, with chairman Jerome Powell stating he would cut rates if the economic outlook deteriorated.
Further highlighting investor expectations of a rate cut from the Fed, the iShares € Corp Bond Interest Rate Hedged UCITS ETF EUR (IRCP) saw the second highest outflows last week totalling $235m. Interest rate hedged products tend to outperform their unhedged counterparts when rates are rising.
This supportive environment has meant demand for fixed income products has been rock solid. So far this year, fixed income ETFs have seen €76.3bn versus just €39.9bn for equity ETFs, according to Amundi.
As Hans Mikkelsen, head of high grade credit strategy at Bank of America Merrill Lynch, wrote in a note: “Should US interest rate volatility recede, as US-China trade-related uncertainties are lifted, we expect significant foreign demand for US corporate bonds to supplement near record inflows to bond funds and ETFs.”
Elsewhere, the battle for Saudi Arabia continues to rage on with the iShares MSCI Saudi Arabia Capped UCITS ETF (IKSA) posting the third highest inflows ($272m) across European-listed ETFs, taking its assets under management (AUM) to $1.1bn.
Meanwhile, it was a completely different story for the Invesco MSCI Saudi Arabia UCITS ETF (MSAU), which saw outflows of $112m. MSAU’s AUM now totals $1.2bn. Who will come out on top remains to be seen.