ASX data released recently shows that investors have welcomed the ability to invest in fixed income via Exchange Traded Funds. Total funds invested have increased 41% to $2.3 billion as at the end of August 2016. The numbers are still dwarfed by equity ETFs but it is growing as investors and advisors gain more knowledge and comfort with the fixed income asset class.
In particular, YieldReport has noticed significant switching occurring over the past 12 months as investors amend their asset allocations from, say, corporate bonds to government bonds and back again. The ease of trading ETFs allows such asset allocations to occur smoothly and with limited cost. When corporate creditworthiness comes under pressure switching out of corporate bonds to government bonds becomes more pronounced.
Importantly the ease of trading an ETF for many is a lot easier than conducting a physical bond transaction.
Year to date the Bloomberg AusBond composite bond index has outperformed the S&P/ASX 200 and perhaps retail investors have cottoned onto this.