Fixed income ETFs endured another painful year in 2021 as inflation soared and central banks began to unwind the huge stimulus packages implemented at the onset of the coronavirus pandemic.
Investors duly took note and for the second year in a row fixed income ETFs have dominated the outflow charts with no signs of pain receding.
The US consumer price index (CPI) hit 6.8% in November – its highest point since November 1982 – leading the Federal Reserve to warn it may need to raise interest rates “sooner or at a faster pace” than officials had initially anticipated.
Despite the Omicron variant sending cases soaring globally, investors do not see it having a material impact on the coronavirus recovery, with many happy to increase their risk exposure over the year.
With that in mind, several fixed income ETFs were among those recording the largest outflows in Europe over the past 12 months – across both government and corporate bonds – while several gold ETCs and Europe ETFs also recorded some of the biggest outflows last year.
Inflation fears ravage bond ETFs
Much of the outflows were experienced in Q1 as negative sentiment towards fixed income ETFs lingered from 2020.
Three BlackRock fixed income products were in the top five for outflows in the first quarter of 2020, with LQDE, the iShares € High Yield Corp Bond UCITS ETF (IHYG) and the iShares Core € Corp Bond UCITS ETF (IEAC) recording combined redemptions of $5.1bn.
While IEAC outflows stabilised, losing a modest $660m to investor redemption, IHYG recorded outflows of $1.2bn last year, the third highest of any ETF listed in Europe.
Despite this, return losses were modest. LQDE returned 1.6% while IHGY was up 0.1% in 2021.
As a result, both clawed back assets in the second half of the year. LQDE saw inflows of $500m while IHGY recorded flows of $260m in the six months to January, although both are set to take a hit if and when rates rise.
The story was much the same in the eurozone, with the $3.3bn Xtrackers Eurozone Government Bond UCITS ETF (DBXN) taking a substantial hit to its assets under management (AUM) after investors pulled $1.1bn from the product last year.
Emerging market debt has also had a torrid year hit by China’s growth slowdown and its debt-laden real estate sector.
The iShares J.P. Morgan $ EM Bond UCITS ETF (IEMB) and the iShares J.P. Morgan EM Local Govt Bond UCITS ETF (SEML) saw $1bn and $861m of outflows, respectively last year. It is the second year in a row SEML has appeared in the outflow charts after it recorded outflows of $2.5bn in 2020 as emerging markets were stung by global lockdowns.
In a reverse sentiment of 2020, where two gold ETCs topped the inflows charts with a combined inflow of $9.7bn, several other ETCs featured prominently in last year’s outflows.
Thie WisdomTree Physical Gold ETC (PHGP) recorded outflows of $1.4bn in 2021 and is the second year in a row it has featured in the top outflows chart, after recording an asset exodus of $1.5bn in 2020.
PHGP was hit last year after several competitors cut fees and launched competitive products.
Elsewhere, European equity ETFs also took a substantial hit over the year including three products tracking the Euro Stoxx 50 index.
The Lyxor EURO STOXX 50 UCITS ETF (MSE) and the iShares EURO STOXX 50 UCITS ETF (EXW1) saw outflows of $1.7bn and $1.6bn respectively, while the Amundi Euro STOXX 50 ETF (C50) recorded an asset exodus of $900m.
It was a similar story for the Lyxor MSCI Europe UCITS ETF (MEU) which also saw outflows of $1.7bn.
All three Euro Stoxx 50 ETFs benefitted from strong performance returning 24% over the year, however, investors continued to favour the US over the European stock market with the majority of the largest asset-gathering ETFs tracking the S&P 500 or broader US market.
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