The Sleepy Schwab Bond Fund generates $2 billion in inflows in one day

(Bloomberg) — A bond ETF that hasn’t seen significant inflows since its launch more than three years ago just received a nearly $2 billion cash injection.

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The assets of the Schwab 5-10 Year Corporate Bond ETF (ticker SCHI) rose to a record $2.33 billion on Monday from around $356 million previously. The fund, a product of the financial company Charles Schwab Corp., tracks the total return of an index based on the performance of medium-term US corporate bonds.

Such a large flow is usually indicative of either a tax-friendly trade known as a heartbeat – in which case, expect outflows in the coming days – or movements of a large model portfolio. Such a portfolio shift was suspected earlier this month when around $4 billion was withdrawn from BlackRock Inc.’s iShares ESG Aware MSCI USA ETF (ESGU).

“We regularly review and update the asset allocations and ETF selections in our packaged solutions,” a representative of Schwab’s wealth management unit responded to an inquiry about the sudden inflow.

Money has flowed out of ETFs linked to shorter-dated bonds this month. ETFs that track bonds with maturities of one to three years saw outflows of $3 billion in March.

“People are rotating a little more on the curve hoping for a Fed pivot,” he said.

The sixfold increase in assets overnight is certainly impressive given that the cash inflow comes at a time of instability for the Schwab empire. The Westlake, Texas-based company saw unrealized losses surge to more than $29 billion last year as long-dated bonds weighed on its balance sheet. High interest rates have pushed customers to withdraw their money from the company’s accounts.

As of Tuesday’s close, the Schwab ETF has returned around 3.2% this year, outperforming many similar ETFs tracking investment-grade bonds, which have average returns of around 2.3%, according to data compiled by Bloomberg. lay.

More than 90% of the fund’s holdings are in companies across the industrials and financial sectors, including names such as Goldman Sachs Group Inc., PG&E Corp. and Wells Fargo & Co.

Bottom-tier (BBB) ​​investment-grade companies make up the bulk of the portfolio. Almost all bonds expire within five to ten years. Investment-grade companies rushed into the market last week as the spread between junk and high-grade bonds widened to a five-month high.

Todd Sohn, an ETF strategist at Strategas Securities, believes the SCHI investor found the risk profile of intermediate corporate bonds attractive, particularly given the “very chaotic band” in the stock market.

“The ETF way is always easier and cleaner,” Sohn said. “Corporate bonds can be difficult to analyze – some don’t trade, or you end up picking the wrong individual bonds. The ETF gives you broad, transparent exposure. It’s just a lot cleaner and more accessible to the average investor.”

–Assisted by Sam Potter.

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