Investors stepped up their risk appetite on the bonds side in June, pursuing the prospect of higher yield as Federal Reserve policy remains uncertain, according to data from State Street. Last month, fixed income exchange traded funds saw nearly $25 billion in flows, with investors ramping up exposure to long-term government bonds to the tune of more than $6 billion, the asset manager found. However, investors were also content to ramp up credit risk, directing more than $1.
Though the floating rate component of these assets allows them to fare well in a rising rate environment, investors may see their income decline once the Fed begins to dial back its policy. Snapping up actual bank loans and CLOs is beyond the means of individual investors, but they can get exposure to the space through ETFs. Though these strategies shouldn't make up the lion's share of an investor's fixed income allocation, they can be a small component of a diversified portfolio.