Consider This Before Joining the Bond ETF Stampede
Individual bonds and bond ETFs are two completely different animals.
Upon reflecting on the 2008 credit crisis, many investors might've realized that they were too concentrated in equities and that a balanced portfolio of stocks and bonds could have mitigated their downside considerably. Sure, most asset classes plunged in the back half of 2008 amid the global deleveraging crisis. However, lest we forget, in a monumental "flight to safety" we saw a rally of epic proportions in U.S. Treasuries.
We hope that most of the $35 billion in new assets that flowed into fixed-income exchange-traded funds in 2009 were not just chasing performance. But, considering what we know about general investor behavior, it's probably not too far off to conclude that fear and panicked buying also likely helped fuel the massive inflows into bond ETFs and mutual funds last year. (In 2009, fixed-income funds accounted for $357 billion of the $377 billion in total net inflows into open-end mutual funds). Over the course of the year many ETF providers also rolled out new products to match the growing demand for bond funds.