Bond ETFs’ resiliency surprises many investors
Despite curveballs from central banks catching the greater bond market off guard, bond ETFs enjoyed a positive Q1
Although this past quarter’s bond market wasn’t quite as hot as the market’s performance in the fourth quarter of 2014, the resiliency certainly surprised many investors, given the central bank curveballs that occurred.
Among the wild pitches in Q1: the Swiss central bank’s decision to let the franc float after committing to a euro peg a few years ago, Canada’s surprise rate cut, and more dovish comments from Federal Reserve Chair Janet Yellen (and other FOMC members) that extended the date for the first rate hike under the new chief.
While each of those actions caught the greater bond market off guard, each of them also emboldened bond market investors willing to take a bit more risk. Long-term bond exchange-traded products (ETPs) raced to an early lead, hit a slump in February and then cruised to victory in March, finishing the quarter up 1.62% on average.
Fixed-income ETFs ranked by quarterly returns
| Name/ticker | 3-month return | 1-year return | Net assets ($M) | Expense ratio* | 3-month average daily volume |
|---|---|---|---|---|---|
| PowerShares DB US Dollar Index Bullish Fund (UUP) | 8.16% | 20.86% | $1,338.3 | 0.75% | 2,346,699 |
| PIMCO 25+ Year Zero Coupon US Treasury Index ETF (ZROZ) | 6.36% | 39.28% | $141.3 | 0.15% | 12,316 |
| WisdomTree Bloomberg US Dollar Bullish Fund (USDU) | 5.86% | 18.39% | $340.2 | 0.50% | 192,208 |
| Vanguard Extended Duration Treasury Index Fund ETF (EDV) | 5.32% | 35.80% | $477.7 | 0.12% | 179,535 |
| iShares 20+ Year Treasury Bond ETF (TLT) | 4.19% | 23.20% | $6,519.3 | 0.15% | 9,541,973 |
| SPDR Barclays Long Term Treasury ETF (TLO) | 3.92% | 21.21% | $331.1 | 0.10% | 95,022 |
| Vanguard Long-Term Government Bond Index Fund ETF (VGLT) | 3.91% | 20.94% | $233.1 | 0.12% | 64,435 |
| SPDR Wells Fargo Preferred Stock ETF (PSK) | 3.80% | 11.74% | $300.3 | 0.45% | 34,170 |
| Market Vectors Fallen Angel High Yield Bond ETF (ANGL) | 3.77% | 6.33% | $19.3 | 0.40% | 7,298 |
| iShares Core Long-Term USD Bond ETF (ILTB) | 3.50% | 14.55% | $235.6 | 0.12% | 36,464 |
| SPDR Barclays Long Term Corporate Bond ETF (LWC) | 3.39% | 12.53% | $438.0 | 0.12% | 118,412 |
| Vanguard Long-Term Bond Index Fund ETF (BLV) | 3.33% | 15.78% | $1,270.8 | 0.10% | 145,976 |
| First Trust Preferred Securities and Income ETF (FPE) | 3.21% | 8.34% | $164.9 | 0.87% | 110,023 |
| Vanguard Long-Term Corporate Bond Index Fund ETF (VCLT) | 3.19% | 12.90% | $1,288.3 | 0.12% | 28,540 |
| PowerShares Preferred Portfolio (PGX) | 3.16% | 11.07% | $2,850.3 | 0.50% | 1,169,173 |
| Deutsche X-trackers Solactive Inv Gr Sub Debt ETF (SUBD) | 3.12% | N/A | $10.4 | 0.45% | 1,369 |
| Guggenheim Invest BulletShares 2022 HY Corp Bond ETF (BSJM) | 3.09% | N/A | $15.0 | 0.42% | 4,481 |
| Guggenheim Invest BulletShares 2021 HY Corp Bond ETF (BSJL) | 3.06% | N/A | $19.9 | 0.42% | 6,358 |
| Guggenheim BulletShares 2024 Corporate Bond ETF (BSCO) | 2.97% | N/A | $34.3 | 0.24% | 21,720 |
| Market Vectors CEF Municipal Income ETF (XMPT) | 2.96% | 13.38% | $45.4 | 1.65% | 3,204 |
| iShares iBonds Mar 2023 Corp ex-Financials ETF (IBCE) | 2.93% | 7.63% | $39.3 | 0.10% | 2,034 |
| iShares 10+ Year Credit Bond ETF (CLY) | 2.93% | 12.11% | $911.1 | 0.20% | 19,091 |
| PIMCO Diversified Income Active Exchange-Traded (DI) | 2.87% | 2.77% | $47.2 | 0.85% | 2,363 |
| Guggenheim BulletShares 2023 Corporate Bond ETF (BSCN) | 2.86% | N/A | $18.7 | 0.24% | 9,615 |
| Guggenheim BulletShares 2022 Corporate Bond ETF (BSCM) | 2.85% | 7.20% | $165.2 | 0.25% | 113,645 |
| iShares US Preferred Stock ETF (PFF) | 2.77% | 9.19% | $13,072.7 | 0.47% | 2,160,132 |
| PIMCO Total Return Active Exchange-Traded Fund (BOND) | 2.73% | 7.49% | $2,585.4 | 0.55% | 195,484 |
| PowerShares 1-30 Laddered Treasury Portfolio (PLW) | 2.66% | 13.07% | $393.0 | 0.25% | 125,173 |
| Vanguard Intermediate-Term Corp Bond Index Fund ETF (VCIT) | 2.66% | 7.01% | $5,196.0 | 0.12% | 22,819 |
| iShares iBonds Mar 2023 Corporate ETF (IBDD) | 2.63% | 7.33% | $64.0 | 0.10% | 5,717 |
| iShares 10-20 Year Treasury Bond ETF (TLH) | 2.63% | 12.31% | $429.6 | 0.15% | 51,793 |
| WisdomTree Strategic Corporate Bond Fund (CRDT) | 2.59% | 5.61% | $7.6 | 0.45% | 516 |
| Guggenheim BulletShares 2020 Corporate Bond ETF (BSCK) | 2.58% | 5.72% | $279.7 | 0.25% | 108,838 |
| Guggenheim BulletShares 2021 Corporate Bond ETF (BSCL) | 2.56% | 6.34% | $143.3 | 0.24% | 69,849 |
| First Trust Tactical High Yield ETF (HYLS) | 2.55% | 2.14% | $415.5 | 1.29% | 45,729 |
| iShares iBoxx $ Inv Grade Corporate Bond ETF (LQD) | 2.54% | 7.69% | $22,418.0 | 0.15% | 2,516,372 |
| iShares Baa – Ba Rated Corporate Bond ETF (QLTB) | 2.53% | 5.74% | $124.9 | 0.30% | 22,540 |
| iShares 7-10 Year Treasury Bond ETF (IEF) | 2.49% | 8.77% | $6,554.1 | 0.15% | 1,911,426 |
| Market Vectors Emg Mkts High Yield Bond ETF (HYEM) | 2.481% | -1.73% | $395.6 | 0.40% | 97,682 |
| PIMCO 7-15 Year US Treasury Index ETF (TENZ) | 2.477% | 8.90% | $25.0 | 0.15% | 2,060 |
While it’s technically not a bond fund, the quarter’s best performer in Lipper’s bond funds universe, PowerShares DB US Dollar Index Bullish Fund (UUP) gained 8.16% as the greenback dominated other currencies such as the euro (+12.7%), the pound (+5.0%) and the Canadian dollar (+8.1%). The top-performing bond ETP was PIMCO 25+ Year Zero Coupon US Treasury Index (ZROZ); with a 6.36% return, it was a huge beneficiary of a Treasury rally that hasn’t tired of playing extra innings. As in the previous quarter, ZROZ led bond fund performance, and again it was followed by peer fund Vanguard Extended Duration Treasury Index Fund ETF (EDV), with a Q1 return of 5.32%.
Fixed-income ETFs with the largest inflows
| Name/ticker | 3-month estiamted net flows ($M) | 3-month return | 1-year return | Net assets ($M) | Expense ratio* |
|---|---|---|---|---|---|
| iShares iBoxx $ Inv Grade Corporate Bond ETF (LQD) | $2,731.55 | 2.54% | 7.69% | $22,418.0 | 0.15% |
| iShares iBoxx $ High Yield Corporate Bond ETF (HYG) | $2,152.25 | 2.08% | 1.41% | $16,712.6 | 0.50% |
| iShares Short Treasury Bond ETF (SHV) | $1,675.43 | 0.04% | 0.02% | $4,785.5 | 0.15% |
| SPDR Barclays High Yield Bond ETF (JNK) | $1,639.51 | 2.40% | 0.58% | $11,439.4 | 0.40% |
| iShares US Preferred Stock ETF (PFF) | $1,214.76 | 2.77% | 9.19% | $13,072.7 | 0.47% |
| First Trust Enhanced Short Maturity ETF (FTSM) | $846.03 | 0.30% | N/A | $964.2 | 0.25% |
| iShares Core US Treasury Bond ETF (GOVT) | $789.91 | 1.60% | 5.26% | $1,054.0 | 0.15% |
| Vanguard Intermediate-Term Bond Index Fund;ETF (BIV) | $782.55 | 2.41% | 6.93% | $5,738.0 | 0.10% |
| Vanguard Total Bond Market Index Fund ETF (BND) | $773.84 | 1.65% | 5.63% | $27,143.4 | 0.08% |
| SPDR Barclays Short Term High Yield Bond ETF (SJNK) | $677.68 | 1.50% | -0.68% | $4,608.2 | 0.40% |
| Vanguard Short-Term Corporate Bond Idx Fund ETF (VCSH) | $655.45 | 1.22% | 2.32% | $9,897.2 | 0.12% |
| Vanguard Intermediate-Term Corp Bond Idx Fund ETF (VCIT) | $577.75 | 2.66% | 7.01% | $5,196.0 | 0.12% |
| iShares TIPS Bond ETF (TIP) | $523.76 | 1.41% | 2.99% | $12,971.4 | 0.20% |
| iShares National AMT-Free Muni Bond ETF (MUB) | $520.41 | 0.84% | 6.00% | $4,655.5 | 0.25% |
| Vanguard Total International Bond Index Fund;ETF (BNDX) | $509.60 | 2.18% | 8.81% | $3,566.8 | 0.20% |
| iShares Core US Aggregate Bond ETF (AGG) | $480.19 | 1.63% | 5.79% | $24,032.5 | 0.08% |
| iShares 3-7 Year Treasury Bond ETF (IEI) | $447.46 | 1.75% | 4.22% | $4,432.5 | 0.15% |
| PowerShares Preferred Portfolio (PGX) | $388.64 | 3.16% | 11.07% | $2,850.3 | 0.50% |
| iShares Core Total USD Bond Market ETF (IUSB) | $347.04 | 1.76% | N/A | $372.3 | 0.15% |
| Vanguard Short-Term Bond Index Fund;ETF (BSV) | $312.95 | 0.94% | 1.86% | $16,084.5 | 0.10% |
The dollar’s strength played an obvious role in determining the quarter’s weakest performers. Currency plays such as Guggenheim CurrencyShares Euro Trust (FXE, -11.35%) and WisdomTree Brazilian Real Strategy Fund (BZF, -14.86%) were easy targets, as were funds in Lipper’s International Income Funds category, such as ProShares German Sovereign/Sub-Sovereign (GGOV, -9.55%) and SPDR Barclays International Corporate Bond (IBND, -9.36%).
One-year anniversary fixed-income ETFs ranked by average daily volume during Q1 2015
| Name/ticker | 3-month average daily volume | 3-month return | 1-year return | Net assets ($M) | Expense ratio* |
|---|---|---|---|---|---|
| Market Vectors Short High-Yield Muni Index ET (SHYD) | 29,731 | 1.13% | 4.41% | $94.5 | 0.35% |
| iShares iBonds Sep 2019 AMT-Free Muni Bond ETF (IBMH) | 15,998 | 0.67% | 2.73% | $48.2 | 0.18% |
| AdvisorShares YieldPro ETF (YPRO) | 14,736 | -0.22% | -1.75% | $47.4 | 1.51% |
| SPDR Barclays International High Yield Bond ETF (IJNK) | 9,388 | -2.71% | -7.48% | $24.7 | 0.40% |
| PIMCO Low Duration Active Exchange-Traded (LDUR) | 4,622 | 1.39% | 2.54% | $155.0 | 0.49% |
| iShares Treasury Floating Rate Bond ETF (TFLO) | 3,406 | 0.06% | 0.13% | $10.0 | 0.00% |
| PIMCO Diversified Income Active Exchange-Traded (DI) | 2,363 | 2.87% | 2.77% | $47.2 | 0.85% |
| WisdomTree Bloomberg Floating Rate Treasury Fund (USFR) | 1,870 | 0.0004% | -0.02% | $1.2 | 0.15% |
| AdvisorShares Sage Core Reserves ETF (HOLD) | 977 | 0.47% | 0.31% | $34.8 | 0.35% |
| SPDR Barclays 0-5 Year TIPS ETF (SIPE) | 916 | 0.39% | -1.01% | $3.9 | 0.15% |
Despite their positions at the top or bottom of the performance tables, just one of the products named so far was among the 20 most attractive (or repulsive) in terms of inflows (or outflows). The quarter’s top destination for new money was iShares iBoxx $ Investment Grade Corporate Bond (LQD), where over $2.7 billion net found a new home. Sister fund iShares iBoxx $ High Yield Corporate Bond (HYG) was second for net inflows with just under $2.2 billion. But investors apparently disregarded the quarter’s Treasury rally because they were net sellers of iShares 7-10 Year Treasury Bond (IEF, -$668 million) and iShares 1-3 Year Treasury Bond (SHY, -$407 million).
Fixed-income ETFs with the largest outflows
| Name/ticker | 3-month estiamted net flows ($M) | 3-month return | 1-year return | Net assets ($M) | Expense ratio* |
|---|---|---|---|---|---|
| iShares 7-10 Year Treasury Bond ETF (IEF) | -$667.90 | 2.49% | 8.77% | $6,554.1 | 0.15% |
| iShares 1-3 Year Treasury Bond ETF (SHY) | -$407.26 | 0.51% | 0.91% | $7,739.2 | 0.15% |
| iShares Floating Rate Bond ETF (FLOT) | -$399.60 | 0.20% | 0.33% | $3,368.1 | 0.20% |
| PowerShares Senior Loan Portfolio (BKLN) | -$297.88 | 1.38% | 1.16% | $5,438.6 | 0.65% |
| PIMCO 1-5 Year US TIPS Index Exchange-Traded Fund (STPZ) | -$255.54 | 0.42% | -1.04% | $1,081.2 | 0.20% |
| WisdomTree Asia Local Debt Fund (ALD) | -$220.71 | -1.28% | -2.64% | $55.7 | 0.55% |
| PIMCO Enhanced Short Maturity Active Exch Tr (MINT) | -$198.24 | 0.30% | 0.68% | $3,664.1 | 0.35% |
| Guggenheim Invest BulletShares 2015 HY Corp Bd ETF (BSJF) | -$162.71 | 1.00% | 1.20% | $842.0 | 0.44% |
| SPDR Barclays International Treasury Bond ETF (BWX) | -$154.28 | -4.12% | -9.23% | $1,690.1 | 0.50% |
| iShares 1-3 Year Credit Bond ETF (CSJ) | -$126.04 | 0.65% | 1.02% | $10,893.2 | 0.20% |
| Guggenheim Invest BulletShares 2015 Corp Bd ETF (BSCF) | -$101.03 | 0.15% | 0.46% | $511.7 | 0.25% |
| PIMCO 7-15 Year US Treasury Index ETF (TENZ) | -$87.27 | 2.48% | 8.90% | $25.0 | 0.15% |
| SPDR DB Intl Govt Inflation-Protected Bond ETF (WIP) | -$61.69 | -4.20% | -7.08% | $668.3 | 0.50% |
| Guggenheim Enhanced Short Duration ETF (GSY) | -$59.94 | 0.50% | 0.95% | $435.6 | 0.30% |
| FlexShares iBoxx 3-Year Target Duration TIPS Index (TDTT) | -$49.41 | 0.49% | -1.19% | $2,150.6 | 0.20% |
| Guggenheim CurrencyShares Australian Dollar Trust (FXA) | -$47.13 | -6.27% | -16.07% | $187.4 | 0.40% |
| iShares 20+ Year Treasury Bond ETF (TLT) | -$46.30 | 4.19% | 23.20% | $6,519.3 | 0.15% |
| PowerShares Chinese Yuan Dim Sum Bond Portfolio (DSUM) | -$43.46 | 0.01% | 2.03% | $107.0 | 0.45% |
| PIMCO 0-5 Year High Yield Corporate Bond Index ETF (HYS) | -$39.69 | 1.28% | 0.36% | $2,858.2 | 0.55% |
| Vanguard Extended Duration Treasury Index Fund ETF (EDV) | -$33.67 | 5.32% | 35.80% | $477.7 | 0.12% |
Despite placing not far from the top of the performance charts, Vanguard Extended Duration Treasury Index Fund ETF shares (EDV) saw investors pull an estimated $34 million net from the fund.
Investors were treated to some new choices during the quarter, although the slow start, with no new products launched until mid-February, ensured that asset gathering was limited.
ETF Managers Capital and Sit Fixed Income Advisors kicked things off with the launch of Sit Rising Rate ETF (RISE), two industry leaders combined to form SPDR DoubleLine Total Return Tactical ETF (TOTL), iShares rolled out seven ETFs that hold investment-grade corporate bonds maturing in each of the odd years from 2017 to 2025, and Deutsche X-trackers released three interest rate-hedged bond ETFs.
Newly-launched fixed-income ETFs ranked by average daily volume during Q1 2015
| Name/ticker | Classification | 3-month average daily volume | Expense ratio* |
|---|---|---|---|
| SPDR DoubleLine Total Return Tactical ETF (TOTL) | Multi-Sector income | 282,650 | 0.55% |
| AdvisorShares Pacific Asset Enh Floating Rate ETF (FLRT) | Loan participation | 23,832 | 1.10% |
| Sit Rising Rate ETF (RISE) | Short U.S. treasury | 12,763 | 1.50% |
| iShares US Fixed Income Balanced Risk ETF (INC) | Multi-Sector income | 4,214 | 0.25% |
| iShares Short Maturity Municipal Bond ETF (MEAR) | Short municipal debt | 3,654 | 0.25% |
| Deutsche X-trackers Hi Yield Corp Bd – IR Hdg ETF (HYIH) | High yield | 1,197 | 0.45% |
| Deutsche X-trackers Emerg Markets Bd – IR Hdg ETF (EMIH) | Emerging Mrkts Hard Currency Debt | 762 | 0.50% |
| iShares iBonds Dec 2025 Corporate ETF (IBDQ) | Core bond | 460 | 0.10% |
| iShares iBonds Dec 2021 Corporate ETF (IBDM) | Core bond | 418 | 0.10% |
| iShares iBonds Dec 2019 Corporate ETF (IBDK) | Short-Intmdt investment grade debt | 361 | 0.10% |
| iShares iBonds Dec 2023 Corporate ETF (IBDO) | Core bond | 332 | 0.10% |
| iShares iBonds Dec 2017 Corporate ETF (IBDJ) | Short-Intmdt investment grade debt | 324 | 0.10% |
| iShares iBonds Dec 2024 Corporate ETF (IBDP) | Core bond | 220 | 0.10% |
| iShares iBonds Dec 2022 Corporate ETF (IBDN) | Core bond | 137 | 0.10% |
| Deutsche X-trackers Invest Grade Bd – IR Hdg ETF (IGIH) | Corporate debt funds BBB-Rated | 70 | 0.25% |
All data above is as of March 31. Excludes leveraged and inverse funds, and exchange traded notes. *Most recently reported net prospectus expense ratio.
Source: Lipper, a Thomson Reuters company
Jeff Tjornehoj is head of Americas research for Lipper Inc.
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