Breaking News

The Hidden Risks In Income Assets

By Callum ThomasStock MarketsApr 26, 2017 12:18AM ET
The Hidden Risks In Income Assets
By Callum Thomas   |  Apr 26, 2017 12:18AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

With the search for yield, low interest rate environment, and central bank asset purchase programs it’s a question worth asking.

Taking one step to answer this question I turned my attention toward the burgeoning ETF market. The chart below, which appeared in the Weekly Macro Themes report, shows the total amount of assets under management in income related ETFs.

The punchline is that income oriented ETF assets under management (AUM) has ballooned to more than half a trillion dollars. Here’s a look at the growth over the past 10 years… So is a bubble in income assets brewing?

ETF Assets Yield Product
ETF Assets Yield Product

I’ve taken a fairly broad-brush approach in classifying these, and included everything from the traditional government bond ETFs through to high yield credit, EM bonds, loan funds, and even the more equity-like but income-focused REITs, MLPs, and Utilities.

To be fair even though the figure has grown more than 10x in the last 10 years, it is actually quite small given the global bond market is worth in excess of $80trillion, but it is still sizable. Another thing is that you should perhaps expect a structurally higher demand for income assets as baby boomers retire and look to their investments to generate income, but there’s almost certainly a cyclical aspect to it too.

What’s worth noting is the various risks embedded within the diverse range of products I included in the chart – they are all income generating and income-focused to a greater or lesser extent, but they are all quite different. For instance some will be exposed to commodity prices, inflation, equity beta, pre-payment risk, liquidity risk, default risk, property prices, etc. And in a downturn where bonds usually perform well, the return experience could end up quite different from the traditional risk/return profile…

There’s also the matter of plain old duration or interest rate risk.

Income Assets Vs Bond Yields
Income Assets Vs Bond Yields

When we had the global reflation trade running in earnest last year (or the Trump Tantrum as some call it) bond yields spiked and losses mounted across income assets, as the chart above shows.

Whether it’s a bubble or not, the level of risk in this booming group of asset classes is real, diverse and complex to manage. A lot of investors may be surprised when their income generating asset gives them more (or less!) than they bargained for. And with ETF AUM in this group of asset classes going from really nothing during the GFC to a more substantial amount, the next downturn will also present a unique set of challenges to the ETF market itself.

The Hidden Risks In Income Assets
The Hidden Risks In Income Assets

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Amit Mishra
Amit Mishra Apr 26, 2017 3:19PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Good one thanks for sharing
0 0
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email