More investors turning to bond ETFs to combat trading challenges — survey

More institutional investors are increasing their usage of bond exchange-traded funds due to a challenging trading environment and a need for liquidity, a Greenwich Associates survey said.

Some 71% of respondents said “the trading and sourcing of securities have become more difficult in the past three years,” according to the survey report, up from 34% that reported issues in a 2015 survey.

Due to regulatory and structural shifts, and the increase of capital costs for banks, 60% of all survey respondents cite more difficulty in completing large trades, and about 40% each said they have experienced higher trading costs and that execution times have slowed. Of those respondents who say they have experienced such challenges, 72% say those difficulties have impacted how they manage their investments. And of that 72%, nearly all, 97%, said they had to consider other trading vehicles for exposure and 88% said liquidity was made more important when considering exposure.

Overall, 84% of all respondents in the survey said low trading costs and liquidity are their main reasons for investing in bond ETFs. They also cited “ease of use, operational simplicity, quick access and speed of execution” as other benefits, according to the report.

Among all survey respondents, 68% said they have increased their use of bond ETFs over the past three years, and that 31% executed a bond ETF trade of $50 million or more, up from 19% of respondents in 2015.

One-third of respondents plan to increase their use of bond ETFs over the next year, and of that number, 30% plan to increase that usage by more than 10%.

Greenwich interviewed 104 U.S.-based institutional investors between June and August, representing $10.3 trillion in assets under management.

A summary of the report is available on Greenwich’s website.