Fixed Income ETFs: a Sign of the Times

Fixed income Exchange Traded Funds (ETFs) are having something of a moment in the sun. As highlighted in a recent report by PwC on the ETF market, in 2020 U.S. fixed income ETFs achieved greater inflows than U.S. equity ETFs for the first time. 

The overall picture revealed by PwC is of an ETF class that is resilient and increasingly popular. Even the pandemic could not halt uptake of fixed income ETFs, which accelerated as institutional investors hunted out liquidity to help them through the volatile conditions of early 2020. 

The core strengths of bond ETFs – liquidity, transparency, and lower transaction costs than the underlying bonds – have made them highly attractive. It’s little wonder that respondents to a survey PwC conducted for its report believe that fixed income ETFs will lead the pack in terms of demand in the next 2-3 years. 

Rimes - Transparency where it counts

Rimes’ own data provides further insights into fixed income ETFs to help institutional investors make the most of the opportunities on offer. Our analysis reveals that the top ten fixed income ETFs this month by percentage of inflows are as follows (the list is filtered to only include ETFs with at least $10 million in AUM):

As this chart illustrates, the growth leader of the pack – USFR – has grown rapidly since its reverse split on March 24: from $2,794,438,710.29 in assets under management on March 24 to $6,343,986,689 in assets under management on June 16.

Our data also suggests that municipal bond ETFs (MUNIs) are on the rise. Within the top ten, both IBMN and JMUB have performed well. As with USFR, this is likely because firms are chasing safe investments given the current economic turbulence, while also looking to take advantage of associated tax benefits. 

Finally, the Proshares (SJB) ETF is interesting, as it suggests that not all fixed income ETFs are equal. SJB is short high yield bonds and it’s been gaining traction. The fund achieves the leverage by holding a swap on the index “'MARKIT IBOXX $ LIQUID HIGH YIELD INDEX (HYG).” This is likely because investors are expecting lower prices for high yield bonds as part of the market turmoil. 

The Rimes ETF data solution service combines our Benchmark Data Service with our ETF offering by decomposing this swap into its underlying fixed income constituents, giving clients a more accurate risk profile for this product.

Making sense of fixed income ETFs

The fixed income ETF space should therefore be of interest to all institutional investors. However, success in this market is only possible if firms can drill down into the data behind the top-level numbers. 

This is where Rimes provides a crucial point of differentiation. Unlike any other enterprise data management company, Rimes provides both fixed income ETF data and the fixed income indices to which they are benchmarked. What’s more, we deliver full composition data, this includes holdings and benchmark constituents. This allows our clients to perform portfolio, risk, compliance, and performance analysis according to their custom specifications.

Get in touch for more information on how Rimes can provide you with the data you need to make the best decisions around your fixed income ETF strategy: https://www.rimes.com/contact-us/