Fixed income and cash ETF inflows see 46% surge
Flows into cash and fixed income ETFs rose by 46 per cent in October with investors demonstrating a preference for Australian credit ETFs as they move away from AT1 bank hybrids.
The monthly Betashares ETF report found flows into these cash and fixed income ETFs stood at $1.22 billion in September but had risen to $1.79 billion by the following month.
This represented 30 per cent of total monthly inflows, up from 24 per cent in September.
Broken down by sub-category, Australian bond ETFs gained $994 million, cash gained $409 million and global bond ETFs gained $377 million.
Among popular funds to see inflows during the month included Betashares Australian High Interest Cash ETF which gained $298 million, Vanguard Global Aggregate Bond Index (Hedged) ETF which gained $220 million and the VanEck Australian Subordinated Debt ETF which saw inflows of $209 million.
While fixed income and cash ETFs saw inflows rise, they still remain in third place behind international equities which gained $1.94 billion and Australian equities which gained $1.45 billion.
During October, BlackRock launched the iShares Core Global Aggregate Bond (AUD Hedged) ETF (AGGG) which invests in investment-grade global bonds, including government, securitised, and investment-grade corporate bonds across multiple regions.
Meanwhile, PIMCO launched the Short Term Active Yield Active ETF (EARN), designed to provide an alternative to cash and term deposits by investing in a portfolio of investment grade bonds. This was the fifth fixed income active ETF from PIMCO, having launched four in February.
Total ETF inflows during the month stood at $5.99 billion which was a new record for the industry to bring total funds under management to $321 billion. Betashares said this was only the third-ever month when inflows had stood higher than $5 billion.
Vanguard Australian Shares Index ETF retained its hold as the largest ETF at $22.6 billion with inflows of $329 million during the month.
Monthly commentary from Global X ETFs also noted Australian credit ETFs remained a key focus for inflows in the wake of hybrid securities rolling off with the sector seeing the highest-ever monthly inflows of $526 million.
“The Australian Credit ETF category recorded its highest-ever monthly net flows of $526 million last month, marking positive net inflows in 39 of the past 40 months, with at least $300 million entering the segment each month over the past six months. This consistent growth reflects investors’ renewed appetite for defensive, income-generating assets as yields remain elevated, and cash alternatives begin to lose their appeal.
“One key structural shift reshaping the landscape is the gradual phase-out of bank hybrid securities by 2032, following regulatory changes from APRA.
“Investors have shown a clear preference for low-duration, floating-rate exposures that sit lower in the capital structure yet still offer robust yields. However, as issuance increases, spreads may compress, potentially limiting future upside as a standalone investment.”
AUTHOR
Laura Dew
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