Displaying items by tag: fixed income

In an article for ETFStream, Theo Andrew discussed how bond market liquidity has improved in recent years due to increased electronic trading and fixed income ETFs. Bond ETFs have gone from $729 billion in assets under management to $1.7 trillion between 2017 and 2023. By the end of the decade, it’s projected to reach $5 trillion which would equate to 5% of the global bond market.

In some smaller markets, ETFs are accounting for an increasing share of trading volume. Institutions are increasingly getting comfortable with these instruments especially to manage credit risk. Trading in ETFs is also less costly than individual bonds. 

Due to increasing liquidity, there is increased price transparency and tighter spreads. It also is enabling more portfolio trading, where asset managers can automate rebalancing and quickly implement changes in the portfolio. 

Growth in portfolio trading and fixed income ETFs has been symbiotic as a deeper and richer fixed income ETF market makes portfolio trading more appealing. In turn, more allocations to portfolio trading inevitably boost inflows into fixed income ETFs. 

Finsum: Fixed income ETFs are leading to an increase in bond market liquidity. In turn, this is leading to more adoption of portfolio trading. 

In an article for Vettafi, Todd Rosenblum covers the growth of active equity and fixed income funds, and how they are taking an increasing share of the ETF market. 

The category has seen 50% growth in assets over the last 3 years and now comprises 6% of the total ETF market. In response to this demand, there has been an increase in the issuance of active ETFs. 

It’s particularly relevant for fixed income as active funds can take advantage of opportunities unavailable to passive funds. One example is the Blackrock Flexible Income ETF which is designed to give investors opportunities for yield in more obscure markets. 

Blackrock is a major presence in the active ETF market and also recently launched the BlackRock Ultra Short-Term Bond ETF and the BlackRock Short Maturity Bond ETF. Overall, Blackrock is looking to create a comprehensive ‘active ETF platform that complements its existing lineup of passive ETFs and active mutual funds. It gives advisors and investors access to its investment resources and management while retaining the benefits of an ETF. 

Finsum: Active ETFs are booming, and Blackrock is looking to capitalize with several recent offerings in the space.

In an article for ETFTrends, Todd Rosenbluth discussed how US insurance companies are aggressively investing in fixed income ETFs. Last year, the industry invested a total of $37 billion in ETFs. This is a small portion of the overall ETF market and the $7.9 trillion that is cumulatively managed by US insurance companies. 

However, insurance companies are some of the largest holders of fixed income ETFs especially for corporate bonds according to a report from S&P Dow Jones Indices. S&P Dow Jones believes that insurers are gravitating to these products because of increased liquidity and higher yields. Additionally, these ETFs functioned well over the last couple of years despite periods of considerable market stress. 

In terms of ownership, insurance companies own 14% of the iShares iBoxx $ Investment Grade Corporate Bond ETF at year-end 2022. The average duration is 8 years with a split of A- and BBB-rated bonds. 

2 more popular bond ETFs are the iShares 1-5 Year Investment Grade Corporate Bond ETF andthe iShares 10+ Year Investment Grade Corporate Bond ETF (IGLB). Both invest in similar products but with different durations. Each has 11% and 7% ownership by the insurance industry, respectively. 

Finsum: Fixed income ETFs are becoming increasingly accepted by institutional investors. Research from S&P dow Jones shows that insurance companies are some of the largest holders.

2023 has been quite different compared to 2022 especially from a financial markets perspective. Due to raging inflation and a hawkish Fed, 2022 saw weakness in both stocks and bonds. In contrast, both asset classes have delivered positive returns in 2023 YTD despite significant and continued headwinds.

This is particularly the case for active fixed income. In an article for the Financial Times, Madison Darbyshire and Harriet Agnew highlight how large asset managers have been increasing allocations to the category as they look to lock in higher rates with the Fed in the final innings of its rate hikes. Analysts are noting demand from institutional and retail investors, across the active fixed income spectrum. 

In 2022, $332 billion moved out of the category, but 2023 has already seen inflows of $100 billion in the first third of the year. This trend is expected to only strengthen with active fixed income ETFs expected to continue taking a larger share of the fixed income and ETF universes. According to State Street CEO Yie-Hsin Hung, "It feels like the beginning stages of what happened in equities.”

Finsum: After a poor 2022, inflows into active fixed income are sharply higher as they look to lock in higher rates given the end of the Fed’s tightening and increasing odds of a recession.

Rules. Rules. Okay, right; not on your top 10 list. Understood. But since the, well, ETF rule, hit the scene in 2019, ETFs have, as they say, come a long way, according to etfdb.com.

In fact, those that have proved their mettle are paying dividends by being particularly attractive to investors. Okay, but how do they pull that off? The three year milestone’s one way. During that period, a strategy to put together assets, establish a track record and strut their worth can blossom. Investors – with fixed income engaging a return – could mull the addition of a core fixed income ETF on the verge of hitting its own three year mark.

This year, escalating inflation and interest rates – not to mention the burgeoning risk of a recession – have done a number on the way in which exchange traded funds are performing, according to the globeandmail.com.

“We’re likely going to see a dichotomy of looking for safety while seeking income,” says Danielle LeClair, director of manager research at Morningstar Canada in Toronto.