The rise of exchange-traded bond funds is both rapid and relentless.
To get a sense of the momentum, take a look at LQD. The iShares iBoxx Investment-Grade Corporate Bond ETF, or LQD, as it's also known, is the world's second-largest bond ETF and it took in $1.1 billion of new funds on Thursday. That's its biggest daily inflow ever and the largest ever recorded for a corporate bond ETF, according to data compiled by Bloomberg.
LQD invests in high-grade dollar bonds from corporations, including Anheuser-Busch InBev NV and Verizon Communications Inc. Its largest daily inflow before Thursday was $628.9 million in May 2013.
Global fixed-income ETFs, which track bond indexes and trade like stocks, attracted $66.7 billion of inflows this year, according to data compiled by BlackRock Inc. That puts the market on pace to top last year’s record total of $91.7 billion.
Bond funds are gaining favor as investors seek exposure to credit assets amid record-low yields on government debt. Growth has also been stimulated by a loss of faith in active managers and deteriorating trading conditions in credit markets.
"As yields go lower and lower globally investors are looking for every bit of incremental yield, whether investment-grade, high-yield, or even dividend stocks," said Peter Tchir, head of macro strategy at Brean Capital LLC. "IG has the additional 'safety' advantage which is a benefit as we are at all-time highs in the S&P 500 and have the lowest treasury yields in recent memory."
Growth of bond ETFs has also been supported by investors seeking stability "in light of heightened volatility and a high level of geopolitical uncertainty," said David Mazza, head of ETF and mutual fund research at State Street Global Advisers in New York. ETFs have emerged as a popular choice among investors seeking to navigate the market rout following Britain's vote to leave the European Union.