Advisers Favour Bond ETFs

LOW COST FUNDS: Corporate bond funds were the most popular ETFs among advisers in the three months to the end of 2013

Emma Wall 28 February, 2014 | 5:11PM
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Investors are hungering for developed market equities – but their financial advisers are snapping up corporate bond ETFs on their behalf.

While investors are attracted to the returns of the S&P 500 and the FTSE 100 – which reached a 14 year high this week – investment professionals know the importance of diversification.

Exchange traded fund provider iShares revealed that corporate bonds were the most popular type of ETFs among financial advisers in the last quarter of 2013. iShares corporate bond ETFs saw inflows of £59 million in the three months to the end of last year. The iShares Corporate  Bond 1-5yr UCITS ETF (IE15) was the most popular, selling £39 million.

The iShares fund is Morningstar three-star rated, and although there are no five-star rated corporate bond ETFs – but there are three four-star rated funds.

The US-domiciled Vanguard Long-Term Corporate Bond ETF (VCLT) has returned 4.5% already this year, and its largest holding is a Verizon (VZ) bond paying 6.55%.

The second most popular asset class among advisers in the last three months of 2013 developed market equities; aligned with private investors’ plans to up their exposure to UK and US equities this year. According to iShares, of the £49 million invested into developed market ETFs over the period, the most popular was the two-star rated iShares EURO Total Market Value Large UCITS ETF (IDJV).

According to the latest Schroders Global Investment Trends Report UK investors will be investing their disposable income in developed market equities this year – despite acknowledging better chances for growth lie elsewhere. Instead of returns, investors are prioritising stability, preferring the lower-risk equity classes.

According to the Morningstar ETF Screener there is only one four-star UK Equity Income ETF, the iShares UK Dividend UCITS ETF (IUKD).

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
iShares € Corp Bond 1-5yr ETF EUR Dist110.26 EUR-0.14Rating
iShares UK Dividend ETF GBP Dist794.20 GBX0.80Rating
Verizon Communications Inc51.58 USD1.09Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar