Only a year ago, during the height of the rising interest-rate fears tied to Fed tapering, investors were exiting bond funds in droves.
"Investors were saying that the bond market was done and it was time to reallocate into divided-paying equities," said Matt Hougan, president of ETF.com, but he says that trend hasn't sustained itself. "We are seeing more movement into longer-duration Treasuries," Hougan said.
Bond ETF inflows totaled about $8 billion in August, while flows into equities, most into international strategies, totaled almost $7 billion, according to ETF.com. The iShares 7-10 Year Treasury Bond ETF was the most popular fund last month, pulling in $1.47 billion—it has gathered almost $4 billion in 2014 through August. Not far behind it were the iShares 1-3 Year Treasury Bond ETF and iShares 3-7 Year Treasury Bond ETF, both among the top 10 ETF asset gainers in August. The iShares 20+ Year Treasury Bond ETF has also been receiving increased attention from investors.
"Interest rates will be slow to rise, and in a slow-rise interest-rate environment, bonds are not necessarily a bad thing," Hougan said, adding that bonds aren't anyone's idea of a "fantastic opportunity," but the expectation that there would be a 1 percent to 2 percent increase in the 10-year yield has dissipated. Instead, investors are seeing a sustained period of low interest rates, with a potentially slow gradual rise. "In that environment, you probably want bonds in your portfolio," Hougan said.