Bond ETF inflows surge to $2.5bn in 1H23

26 July 2023
| By Rhea Nath |
image
image
expand image

Following its worst performance in decades in 2022, fixed income ETFs have attracted the most cashflow of any asset class in the first half of this year, according to research.

Latest data released by the ASX and Vanguard has found Australian bond ETFs received $1.74 billion in 1H 2023, up 54 per cent since for this same period in 2022.

Similarly, international bond ETFs received $763 million in 1H 2023, which marked a meteoric 215 per cent rise since 1H 2022. 

Collectively, net flows into Australian and global fixed income ETF products totalled some $2.5 billion over the first half of the year, Vanguard said.

Duncan Burns, Vanguard’s head of investments, Asia-Pacific, observed that rising interest rates have helped improve long-term return expectations for the asset class. 

“While bond prices typically reprice lower when interest rates rise, investors with a sufficient long-term investment horizon will ultimately be better off,” Burns said. 

“Investors are also flocking to bonds in their search for diversification and income as yields continue to stabilise (a signal that investors are becoming more optimistic), presenting an attractive alternative to holding cash which has generally underperformed bonds post rate hike cycles.

“Interestingly, despite the strong first half rally in global equity markets, demand for domestic fixed income – particularly bonds with high investment grade credit ratings – were the clear winner.”

Similarly, Stockspot noted there are currently $18.2 billion tracking bond ETFs in Australia, growing at a rate of 42 per cent per year, over the past five years. 

Of Australia’s $150 billion ETF market, bond ETFs comprise around 12 per cent, it said.

“After being overlooked last year, bonds have experienced a remarkable return in investor popularity, primarily due to the more attractive yields now on offer relative to bank deposit rates,” Stockspot stated.

It adds that inflows to bond ETFs surpassed Australian and global shares for the first time in the Australian ETF market history.

There are around 50 options of fixed income assets accessible to investors on the ASX and Cboe.  

According to Betashares, the largest provider of cash and fixed income ETFs in the country, its Australian Bank Senior Floating Rate Bond ETF (QPON) has crossed $1 billion in assets under management.

The fund manager explained: “QPON holds a portfolio of some of the largest and most liquid senior floating rate bonds issued by Australian banks, including an 80 per cent allocation to the big four banks and 20 per cent to other Australian banks. The fund aims to provide investors with an attractive monthly income, as well as relative capital stability.”

The ETF has received some $525 million of net inflows in the year to 30 June 2023, including $347 million since the start of the calendar year. 

“Our leading range of fixed income ETFs have enabled investors to build more robust portfolios by providing access to parts of the fixed income market that have traditionally been the domain of institutional investors,” said Betashares chief executive, Alex Vynokur.

“As a result, our floating rate bond funds have assisted investors and their financial advisers to mitigate the impact of global moves to address rising inflation by increasing policy rates.

“In particular, our QPON ETF has helped investors reduce their reliance on fixed rate bonds within their portfolio. Over the past 18 months, investors in our QPON fund not only avoided the worst of the fixed rate bond sell off but also benefited from increased income paid through monthly distributions.”

Read more about:

AUTHOR

Add new comment

The content of this field is kept private and will not be shown publicly.

Recommended for you

subscribe

Stay up to date with Australia’s top news and information source for the wealth management industry

MARKET INSIGHTS

sub-bg sidebar subscription

Never miss the latest news and developments in wealth management industry

Chris Cornish

"Past performance is no guarantee of future results" is something ASIC are always keen to say. Yet when it comes to th...

3 hours ago
Stewart Gibson

Wow, distrust in the Government. Who would have thought that people would distrust that merry band of incompetents that ...

1 day 5 hours ago
One foot out the door

“The advice satisfaction has moved up, and that’s about rebuilding trust, delivering on what we say we will do and not m...

6 days 8 hours ago

AustralianSuper and Australian Retirement Trust have posted the financial results for the 2022–23 financial year for their combined 5.3 million members....

7 months 2 weeks ago

A $34 billion fund has come out on top with a 13.3 per cent return in the last 12 months, beating out mega funds like Australian Retirement Trust and Aware Super. ...

7 months ago

The verdict in the class action case against AMP Financial Planning has been delivered in the Federal Court by Justice Moshinsky....

7 months 2 weeks ago