// GESPONSORDE BIJDRAGE
Outlook and trends in fixed income ETFs BY GERT-JAN VERHAGEN, HEAD OF AMUNDI ETF, INDEXING & SMART BETA SALES, BENELUX
The popularity of bond ETFs shows no sign of fading. By the end of 2019, European net flows outstripped those to equity ETFs. The most popular product category was Eurozone corporate bond ETFs. Positive outlook
outlook, bond markets will be volatile.
Bond ETFs could perform well in 2020.
Over the medium term, however, the
Finding yield in a low-interest environment
While Amundi’s investment strategists
outlook is more favourable for fixed
As more than 70 European government
expect the global economy to weaken,
income markets. When the risk of a
bonds have negative yields, investors
they do not anticipate a recession. The
recession intensifies, an aggressive
have favoured corporate bonds in their
loose monetary policy of the world’s
policy stance could lead to new
search for yield. As a result, European
leading central banks, a partial US-
unorthodox measures. This is likely to
corporate bond spreads have narrowed
China trade deal and the upcoming
extend the credit cycle – which could
by around 40 basis points in 2019.
US elections should all provide a
eventually implode, but probably not in
relatively benign environment.
2020.
Performance will not be linear. In the
Instead of fearing a global recession,
ECB’s bond purchasing programme, a
short term, current market expectations
investors should prepare for a mature
limited supply of investment grade bonds
are overly optimistic. Financial markets
and extended credit cycle, with higher
with the lowest credit rating, and the
are too bullish about the fiscal spending
liquidity risks. They should also ensure
strong financial metrics of most
outlook and about the number of Fed
their portfolio is positioned for a less
European companies. This should cause
cuts which are likely to occur. As
globalised economy as trade wars will
European corporate bond prices to rise.
markets adjust to a more reasonable
not disappear .
Credit spreads could be further squeezed by three factors: the resumption of the
1
BBB-bond ETFs One way to get the best possible yield
Figure 1: Cumulative YTD flows, bn €
on a corporate bond allocation is to select instruments with a BBB rating − the lowest investment grade credit assessment. Loose monetary policy and strengthening fundamentals have increased issuance of this type of bonds. BBB bonds currently account for around 60% of trading volume2 and may offer better liquidity than bonds with an A or AA rating, as these are usually buy and hold investments.
Source: Amundi ETF, Indexing Smart Beta as of 31/12/2019
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FINANCIAL INVESTIGATOR
NUMMER 1 / 2020
The demand for sustainable investments has been increasing rapidly in recent years.
