Key Takeaways
- • Bond funds took in about $90 billion over the past month, nearly matching the $126 billion that flowed into equity funds, a pattern CNBC's "ETF Edge" described as a "very rare" trend in the ETF market.
- • Ultra-short bond ETFs have captured more than 40% of all fixed-income ETF flows this year, according to ETFaction.com data.
- • Actively managed enhanced core bond funds have taken five times the new money of their passive counterparts, per ETFaction data cited by CNBC.
- • TCW's Flexible Income ETF is overweight AI data center bonds, a segment tied to roughly $35 billion in bonds issued to fund AI data center construction; TCW says the corporate credit market as a whole is "fully priced."
- • TCW's Flexible Income ETF has returned 6.51% since its 2018 inception versus 1.82% for the Bloomberg Aggregate Bond Index (AGG), according to Jeffrey Katz of TCW.
Summary
Investors moved heavily into bonds in the most recent period amid market volatility and uncertainty over the impact of President Trump's policies on the U.S. and global economy. The S&P 500 eked out a gain the prior week after four straight weeks of losses. CNBC's "ETF Edge" highlighted that bond funds took in $90 billion over the past month, close to the $126 billion taken in by equity funds, which it described as a "very rare" trend in the ETF world.
Flows have concentrated in two categories: actively managed core bond funds and short-duration bond funds, including ultra-short Treasury products. According to ETFaction.com data, ultra-short bond ETFs have gained more than 40% of all flows into fixed-income ETFs this year. Actively managed enhanced core bond funds, which aim to outperform the Bloomberg Aggregate Bond Index (the "AGG"), have captured the lion's share of new money in their asset class, five times the inflows of passively managed enhanced core index ETFs.
Jeffrey Katz, managing director at TCW, said the classic 60-40 stock-bond portfolio is "doing its part" again after years in which rising Federal Reserve rates pushed bond yields up and undermined the approach. He said the TCW Flexible Income ETF is overweight AI data center bonds, citing a "pretty strong secular tailwind" from the AI boom and cloud storage demand. Roughly $35 billion in bonds have been issued to fund AI data center construction. Katz described data centers as "a new phenomenon" and said TCW views the corporate credit market as a whole as "fully priced." The fund has also leaned into residential single-family housing bonds, which Katz said are undersupplied and carry limited default risk given built-up home equity, and into Class A commercial real estate, where he expects a rebound as workers return to offices.
Katz argued that active managers can move beyond the AGG, which he said does not capture as much as $26 trillion in bond market opportunities. He said the TCW Flexible Income ETF has outperformed the AGG since its 2018 inception by nearly 500 basis points, returning 6.51% versus 1.82%.
Alex Morris, chief investment officer at F/m Investments, argued that bond indices have become bloated with tens of thousands of issuances and that the AGG is "so big, it's un-investable." With over $7 trillion in money market funds and more than $18 trillion in bank deposits, Morris said investors are holding substantial cash while remaining wary of stocks. F/m offers short-duration Treasury exposure through its TBIL ETF and recently launched an ultra-short TIPS ETF holding inflation-protected securities with 13 months or less to maturity and an average duration "well under one year," according to the firm. Morris said tariffs are inflationary "until they become depressionary," and that the firm prefers staying "short and liquid" given inflation concerns, even as the Fed said it expects any tariff impact to be "transitory."
Flows have concentrated in two categories: actively managed core bond funds and short-duration bond funds, including ultra-short Treasury products. According to ETFaction.com data, ultra-short bond ETFs have gained more than 40% of all flows into fixed-income ETFs this year. Actively managed enhanced core bond funds, which aim to outperform the Bloomberg Aggregate Bond Index (the "AGG"), have captured the lion's share of new money in their asset class, five times the inflows of passively managed enhanced core index ETFs.
Jeffrey Katz, managing director at TCW, said the classic 60-40 stock-bond portfolio is "doing its part" again after years in which rising Federal Reserve rates pushed bond yields up and undermined the approach. He said the TCW Flexible Income ETF is overweight AI data center bonds, citing a "pretty strong secular tailwind" from the AI boom and cloud storage demand. Roughly $35 billion in bonds have been issued to fund AI data center construction. Katz described data centers as "a new phenomenon" and said TCW views the corporate credit market as a whole as "fully priced." The fund has also leaned into residential single-family housing bonds, which Katz said are undersupplied and carry limited default risk given built-up home equity, and into Class A commercial real estate, where he expects a rebound as workers return to offices.
Katz argued that active managers can move beyond the AGG, which he said does not capture as much as $26 trillion in bond market opportunities. He said the TCW Flexible Income ETF has outperformed the AGG since its 2018 inception by nearly 500 basis points, returning 6.51% versus 1.82%.
Alex Morris, chief investment officer at F/m Investments, argued that bond indices have become bloated with tens of thousands of issuances and that the AGG is "so big, it's un-investable." With over $7 trillion in money market funds and more than $18 trillion in bank deposits, Morris said investors are holding substantial cash while remaining wary of stocks. F/m offers short-duration Treasury exposure through its TBIL ETF and recently launched an ultra-short TIPS ETF holding inflation-protected securities with 13 months or less to maturity and an average duration "well under one year," according to the firm. Morris said tariffs are inflationary "until they become depressionary," and that the firm prefers staying "short and liquid" given inflation concerns, even as the Fed said it expects any tariff impact to be "transitory."
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