Investors plowed money this month into ETFs that buy junk- rated loans, which have rates that rise with benchmarks. Their popularity has enabled the funds to boost their assets four times as fast as the rest of the $262 billion market for fixed- income ETFs, data compiled by Bloomberg show.
No Cushion
Inflation-linked debt ETFs also had their first monthly inflows in 19 months in March, the data show.
Exchange-traded funds that invest in U.S. stocks were even bigger beneficiaries, amassing $17.4 billion in the largest gain among all classes of ETFs, data compiled by Bloomberg show.
Funds that buy shares of the smallest American companies boosted assets by 5.4 percent, the biggest percentage gain.
“In this atmosphere, you need a cushion against higher rates and Treasuries don’t offer much of a cushion,” Andrew Milligan, the Edinburgh-based head of global strategy at Standard Life Investments Ltd., which oversees about $270 billion, said in an interview. “Equities and higher-yielding bonds look better than most lower-yielding fixed income as the U.S. recovery seems to be on its way.”
Milligan said Standard Life holds a smaller proportion of short-term Treasuries than their benchmark allocation.
Great Expectations
The Fed is building up investor expectations for economic growth that may ultimately prove disappointing, according to Robert Tipp, the Newark, New Jersey-based chief investment strategist at Prudential Financial Inc.’s fixed-income division, which oversees $335 billion.
The Fed’s preferred gauge of inflation, used as an indicator of U.S. consumer demand, has now fallen short of its 2 percent target for 22 straight months.