Amid the low-rate environment, publicly traded money managers saw strong net inflows into fixed income during the second quarter of this year, with many investors taking shelter in the asset class in reaction to, and anticipation of, further market shocks.
BlackRock Inc., New York, for example, saw record quarterly net inflows of $57 billion in its iShares fixed-income exchange-traded funds during the second quarter, the firm reported during its earnings call. The money manager had $100.2 billion of total net inflows in the second quarter, of which $60.3 billion was derived from fixed-income products.
Matthew Steinaway, a senior managing director and chief investment officer for global fixed income, cash and currency at State Street Global Advisors, Boston, said in an interview the firm doesn’t think that low interest rates will necessarily mean lower flows into fixed income.
Of note, fixed income can provide a source of liquidity, generate yield or be used as a liability hedge for LDI clients, he said.
“In the LDI context, I think there’d be a source of growth there because (clients may be thinking) we’ve had a long equity run and it’s time to start locking down assets,” by using an LDI glidepath, Mr. Steinaway continued.
SSGA had $3.05 trillion in AUM, including $476 billion in fixed income as of June 30, up 3.9% over the first quarter.
David G. Eichhorn, president and head of investment strategies at St. Louis-based institutional money manager NISA Investment Advisors LLC, said that “one inconvenient truth about fixed income is there is always a role for it in any rate environment.”
“Yes, rates are very low by any standard … (but) at a high level, clients and asset owners can’t put all their assets into risky asset classes,” he noted.
As of June 30, NISA managed $246 billion in physical assets, which were predominately fixed income, and $168 billion in derivative notional value in separate account overlay portfolios, according to its website.
According to Mr. Eichhorn, most institutional investors fall into two broad camps as it pertains to their fixed-income objectives — either using strategies to dilute the volatility of return-seeking asset classes or using bonds as interest-rate hedging in defined benefit plans.