The investment ecosystem is currently experiencing major upheavals. Between the democratization of ETFs and the increase in A income, all in the context of higher key interest rates from the European Central Bank, it is not necessarily easy to make the right investment choices. However, there seems to be one instrument that stands out: bond ETFs, which are increasingly popular among retail investors. Return on investment generates a return in favor of investors.
The bond fund ETF, a still little-known instrument
Unlike its counterpart, the stock ETF, the bond ETF is much less well known. However, it remains an interesting product in the stock market. Reminder, duty It is a debt guarantee against a loan obtained by a company or a country, and bondholders are compensated through the interest generated from these debts. Thus, a bond ETF is An exchange traded fund made up of bonds. Thus, they allow individual investors easy access to the bond market (knowing that the latter is generally dominated by institutional investors in France, unlike the United States, due to its very high investment tranches).
Despite the fact that it is still not known to the general public, it seems that the bond ETF has become an increasingly popular tool among small investorsaware of the benefits it offers. Thus, in April 2023 (according to TrackinSight), bond instruments in Europe attracted €6.4 billion, compared to €4.3 billion for equity ETFs — a sign of an interesting progression to follow. This trend was confirmed in May, with the inflow of nearly 5 billion euros from this type of ETF. Its success can be explained in particular by its ability to be inexpensive and easy to handle, which gives it the status of a versatile ally, especially during periods of rising interest rates.
The current context, help to democratize bond ETFs
The times we are currently in are tumultuous for personal savings. Against the backdrop of inflation, pension reform and rising interest rates, traditional savings products such as booklet Not enough to build capital. so more than ever, financial education It must continue with individuals, in order to initiate a general awareness in the manner of the United States or other European neighbours, towards more investment in the stock market on the part of the latter.
there An increase in the main rates It is undoubtedly the first factor that explains the new demand from individuals for bonds. A bond ETF makes it easy to enter the bond market, providing transparency and the possibility of almost instant trading in the stock market, something previously impossible for individuals. classic Portfolio 60:40 Comprised of 60% stocks, 40% bonds and valued over decades for its diversification, 2022 has been challenging, with an unusually simultaneous decline in both asset classes. This last happened in 1969 and 1931 and caused some observers to declare the end of the 60:40 bag. Since the beginning of 2023, this portfolio has witnessed a strong performance that renews and enhances its attractiveness.
A bond ETF on its own, or in addition to a stock portfolio, by its many advantages seems to be establishing itself as the leading investment vehicle of the moment, in particular by allowing investors to diversify their portfolio simply and efficiently. Although it is still generally unknown to the general public, we can observe a growing attraction to this type of investment among retail investors, who find in it a way to deal with risks and seize opportunities as the markets enter a new era.
Column written by: Marc Brown, country director for France at Scalable Capital
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