(Bloomberg) – Wall Street’s model portfolio boom seems to be blazing its unseen power for the second time this week after a once-sleepy Charles Schwab Corp. exchange-traded bond fund. got another monster influx.
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About $2.6 billion went into the Schwab 5-10 Year Corporate Bond ETF (ticker SCHI) on Thursday, according to data compiled by Bloomberg, adding to the nearly $2 billion that was lost to the market on Monday funds have flowed. Assets in the ETF have increased more than 10-fold since the end of last week, generating the largest inflows among US ETFs tracked by Bloomberg over the period.
While it’s often difficult to pinpoint exactly who is behind a cash inflow, such large additions suggest adjusting a sample portfolio. These products are essentially off-the-shelf investment strategies, typically consisting of a range of ETFs offered directly to their investors by major asset managers.
Declining fund management costs, improved technology and a new era of retail investing have all combined to see their popularity skyrocket in recent years.
Schwab didn’t comment on Thursday’s inflow, other than saying that the company regularly reviews and updates “the asset allocations and ETF selection in our packaged solutions.” The company was under pressure this month as the US banking sector review hit broking.
It’s difficult to gauge the exact size of Wall Street’s model portfolio industry because many money managers don’t release numbers, but it’s believed they now have trillions of dollars in assets.
Schwab is one of many money managers, including BlackRock Inc. and Vanguard Group, using model portfolio investing. “When they make a change, it’s like all of a sudden,” said Athanasios Psarofagis of Bloomberg Intelligence. “It’s very noticeable.”
It’s unclear if model adjustments are behind the Schwab ETF’s booming week, but a number of clues suggest they are. For one, managers often balance or change portfolios on set schedules. Friday marks the end of the first quarter – a common milestone for currency reshuffle.
Second, another Schwab ETF also focused on bonds — Schwab US TIPS ETF (Ticker SCHP), which targets inflation-linked U.S. Treasury bonds — saw a large outflow of nearly $1.3 billion on Thursday, even though the Zu – and outflows of the two Schwab funds do not match exactly. As of Thursday’s close, SCHP is up about 2.7% since early March, while SCHI is up 3.1%.
Todd Sohn, an ETF strategist at Strategas Securities, said a manager could have moved money from SCHP to SCHI because he “likes the risk and reward there.”
“No surprise either,” said Sohn. “The returns that investors are getting across the curve are very different from what they have been for the last 10+ years.” SCHI targets bonds issued by companies in the industrials and financial sectors and focuses primarily on investment grade issues -Ratings of the lowest level (BBB).
Still, Dave Lutz, head of ETFs at JonesTrading, said it’s not clear if the inflow was the result of a model adjustment. The $4.6 billion could have come from an outside investor who injected new capital into the Schwab universe – lured by the once-drowsy corporate bond ETF.
The fund is “virtually risk-free,” he said. As investors pull money from low-interest savings accounts, an ETF can offer similar appeal to money market funds that have attracted investor interest lately.
Simply put, SCHI’s returns are “a lot better than what savings accounts pay,” Lutz said.
–Assisted by Sam Potter.
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Source : finance.yahoo.com