Fed's Support Boosts Inflows In Bond ETFs: 5 Top Picks

The Federal Reserve’s move to buy investment-grade ETFs that track the corporate bond market has garnered attention of investors who have brought huge inflows since late-March. The Fed’s move helped restore the liquidity in the fixed-income market along with reduced credit risks. Investors are now increasingly favoring corporate bond ETFs for shielding against volatility that might be observed following the U.S. Presidential elections.

Notably, the Fed has purchased 16 different corporate bond ETFs, with its purchases rising in June to $4.2 billion, going by data from Bloomberg Intelligence. Going on, $28 billion was added to those products by investors who were anticipating the central bank’s moves. In fact, inflows to bond funds have come in at $170 billion in 2020, surpassing $154 billion in all of 2019, per data compiled by Bloomberg.

Per Bloomberg’s data, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has been the biggest sector gainer. LQD has witnessed investments amounting to a remarkable $17.5 billion along with Vanguard’s Intermediate-Term Corporate Bond ETF (VCIT) collecting $12.2 billion in investments, per the same source as mentioned above. Going on, some funds like Vanguard Total Bond Market ETF (BND) and iShares Core U.S. Aggregate Bond ETF (AGG) have also attracted impressive investments of $12.1 billion and $8.2 billion, respectively, without Fed support.

Keeping up with the frenzy, around 39 fixed-income ETFs have begun trading so far in 2020, per the article mentioned above. Among the newly-launched funds, iShares 0-3 Month Treasury Bond ETF (SGOV) and Franklin Liberty U.S. Treasury Bond ETF (FLGV) have already seen investments of $890 million and $423 million, respectively.

Commenting on the current scenario, Todd Rosenbluth, head of ETF and mutual fund research for CFRA Research, reportedly said, “we’re already in record territory, and we’re likely to blow that record away, given the volatility headed into an election,” per a Bloomberg article.

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