The hunt for yield. You’ve heard all about it. But have you seen it? We’ve been tracking the trend by watching ETF flows, and they’re showing a hunt that has extended well beyond bonds.
As we’ve noted on the blog, fixed income exchange traded products (ETPs) – which include investment grade corporate and high yield bond ETFs — reached a major milestone in August, taking in more than $50 billion in net new assets year to date. That surpassed last year’s entire annual inflows of $49 billion for the category.
But today’s search for income is not limited to fixed income funds, and this chart demonstrates a big reason why: Treasury yields have been on a downward slope since 2009, and the dividend yield on the S&P 500 index is hovering around 2%.
This lack of yield means that dividend income funds — funds based on indexes that screen for dividend paying equities or those focused on particular market segments like real estate and preferred stocks — have enjoyed steady inflows since July of 2010. As the chart below illustrates, while US large cap ETP monthly net flows have been choppy over the past two years, dividend income ETPs have seen consistently positive flows globally.
In August, high dividend yield, real estate and preferred stock ETPs listed globally pulled in a combined $2.0 billion. Flows into these three dividend income categories have been in excess of $1.5 billion for each of the past 12 months.
For those who want to see this expanded hunt for yield in action, take a look at this chart. It shows annual inflows into US-listed dividend income ETPs through September 17, overlaid with a trend line showing the number of US-listed dividend income ETPs available in each year since 2003.
As you can see, US-listed dividend income funds have attracted inflows every year since 2003. That’s when the iShares Dow Jones Select Dividend Index Fund (DVY) became the first dividend income fund listed in the United States, and it attracted $454.5 million of inflows in 2003.
After DVY’s launch, fund providers began introducing a wider range of dividend income funds. Funds launched offering exposure to large-cap, mid-cap and small-cap dividend paying stocks, as well as dividend paying stocks in emerging markets or the mid-East. By the time 2009 rolled around and interest rates began their downward trend, investors had their pick of 34 different dividend income ETPs that could help to satisfy their hunt for yield.
Since that time, flows have exploded. Dividend income US ETPs have attracted annual inflows above $10 billion every year since 2010 and there are now 53 US-listed dividend income ETPs. This year through September 17, inflows into the category stand at $11 billion – surpassing 2010’s total inflows. With the Fed expected to keep rates low until mid-2015 and investor use of ETFs expanding, this is one trend we don’t expect to fade any time soon.