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Record inflows for inflation-protected bond ETFs

inflation-protected bond ETFsETFs that invest in inflation-protected bonds had a record month of inflows in October, according to Bloomberg data.

As investors rushed to safeguard their capital against rising prices, $5.6 billion was poured into inflation-protected fixed income products over the course of the month. This beat the July high of $3.9 billion. 

The $35.7 billion iShares TIPS Bond ETF (TIP), which invests in bonds with a range of maturities, attracted $8.4 billion in the year to October 21, according to data from research house CFRA.

Meanwhile, inflows into US equity ETFs and other exchange-traded products hit $59.8 billion in October, more than double September’s $28.3 billion.

The increase in overall flows was driven by a rise in equity buying, which climbed to $85.8 billion in October, an increase of over $20 billion from the previous month.

Short-duration ETFs were also a haven for investors over the period. These products are typically more robust when it comes to hikes in interest rates, which are anticipated as central banks look to respond to rising inflation. 

Rob Morgan, chief analyst at Charles Stanley Direct in London, said: “Investors have had little need to worry about high inflation over the past decade – but that is changing with inflation at 3.1% in September, and the Bank of England now warning it will hit or surpass 5% by early next year.

“For many that have been used to low inflation it could be a significant shock to household finances. Unless interest rates rise significantly, a rise in inflation is likely to put a significant dent in the spending power of cash in the bank or building society, and there are consequences for investment portfolios too.”

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