ETF investors flock to gold and corporate bond funds

Gold and corporate bond exchange traded funds attracted record inflows in April following the introduction by central banks of vast monetary stimulus measures in response to the coronavirus pandemic.

Gold ETFs gathered a record $9.2bn in new cash last month, adding to the inflows of $7.7bn registered in March. The price of gold, which is seen as a haven in periods of turmoil, dropped sharply in late March during the global correction across stock markets. But the precious metal recovered swiftly in April to trade above $1,700 an ounce.

“Investors remain defensively focused and added to their gold holdings because of their concerns about coronavirus,” said Rory Tobin, global head of ETFs at State Street Global Advisors.

“But the declines in infection rates and moves by some governments to ease lockdown measures encouraged many other investors, particularly in the US, to use ETFs to add to their risk positions as equities rebounded.”

Investors worldwide allocated $57.8bn in new cash to exchange traded funds and products in April, pushing net inflows in the first four months of 2020 to $177bn, up 22 per cent on the same period last year, according to ETFGI, a London-based consultancy.

The US Federal Reserve has pledged to buy an unlimited quantity of government debt and its controversial decision to use corporate bond ETFs for the first time to provide further support for US fixed income markets sparked heavy buying by investors.

Net inflows into fixed income ETFs reached $27bn last month in an exact reversal of the outflows registered in March.

“The corporate bond market turned on a dime in April as investors saw the Fed’s decision to use corporate bond ETFs as an opportunity to front-run the buying by the central bank,” said Ben Johnson, director of passive funds research at Morningstar, the data provider.

High-yield ETFs have also been included in the central bank’s programme to extend support to the junk bond market for the first time. The two largest high yield ETFs, BlackRock’s HYG and State Street’s JNK, pulled in $3.8bn and $1.5bn respectively.

“Investor sentiment towards high-yield bonds turned positive very quickly as soon as the Fed announced it would use ETFs,” said Mr Tobin.

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