BlackRock’s ‘Widow Maker’ ETF Is Suddenly in High Demand

With a nickname like “widow maker,” you’d think investors would stay away.

The iShares 20+ Year Treasury Bond ETF (TLT), which got its moniker because of its recent poor performance — took in $1.3 billion assets in the past week, according to CFRA Research. Since long-term Treasury bonds are more susceptible to the effects of interest rate changes as they mature, short or intermediate bonds are often more appealing. And for TLT, if investors bought the fund five years ago, they would have lost some 45% of their original assets, according to the Financial Times. But, it looks like long-term products are increasingly on the menu.

“TLT is often used by investors to buy the dip when they think [Fed interest] rates have peaked,” said Aniket Ullal, head of ETF Research & Analytics at CFRA. “We may be seeing similar behavior here since inflation numbers have been fairly benign recently.”

Is This the Bounce Back?

The bond market had a small win last week as both 20-year and 30-year Treasury yields began trading just below 5%, the first time since May 20. And while President Donald Trump doesn’t have the authority to lower interest rates, he’s made his position well known, recently telling Fed Chair Jerome Powell he’s making a “mistake” by not lowering them. Plus, who could forget all that volatility? All this could be contributing to TLT’s momentum.

“Investors in long-term Treasury bond ETFs like TLT will win if the US economy weakens significantly and investors believe the Fed will need to cut rates aggressively,” said Todd Rosenbluth, head of research at VettaFi. However, he noted that TLT doesn’t have the strongest track record, and taking on significant duration risk has not been rewarding for investors:

• Over the past five years, the fund has taken in roughly $50 billion in inflows, per VettaFi data. 
• But, its performance is down nearly 50% in that same time.

“Timing this trade can be very difficult,” Ullal told Advisor Upside.