Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. MONEY MANAGEMENT
May 01, 2017 01:00 AM

Many convinced bond ETFs are ready for prime time

Ari I. Weinberg
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    The dynamics of the fixed-income market — over-the-counter trading, largely limited liquidity — have prevented the exchange-traded fund industrial complex from muddying the waters of bond ETFs with the adventurousness of niche products on the equity side — airlines, restaurants, marijuana, etc.

    Yet many industry participants believe fixed-income ETFs represent the greatest opportunity for growth across the ETF ecosystem.

    Consider the imbalance in the current fund environment: loosely defined fixed-income products account for 17% of ETF assets under management, while U.S. bond and money market mutual funds account for 41%, according Investment Company Institute data through February.

    Within the $471 billion fixed-income ETF landscape are 309 funds and 37 fund sponsors. Fourteen funds hold more than $10 billion, the largest largest of which is the $44 billion iShares Core U.S. Aggregate Bond from BlackRock Inc., according to XTF Inc.

    According to BlackRock, global bond ETFs experienced record inflow in the first quarter of $44.5 billion.

    Yet, just 20 fixed-income ETFs have average daily share volume over one million, compared to 107 on the equity side. And the survival rate for debt ETFs — 78.7% — is only marginally higher than that of equity products at 74% though asset managers have launched 5.7 times more equity ETFs, according to investment advisor Ron Rowland who tracks ETF survivorship at InvestWithAnEdge.com.

    “It's closer than I thought,” said Mr. Rowland, despite the industry's opportunity to learn from a 10-year head start in experimentation on the equity side.

    Still, advocates of fixed-income ETFs believe that the ETFs themselves will grease the wheels of transparency and perhaps facilitate smoother price discovery for underlying debt securities and even enhance trading in less active fixed-income markets and issues. But, even a finely tuned security pricing machine would never deign to deliver debt products as narrow or esoteric as the equity market. Some that tried have already come and gone: In 2015-"16, iShares delisted a handful of sector bond funds and narrow corporate credit funds. De-listings from other issuers have included state municipal bond funds and several country-specific debt exposures.

    “Bonds will always have the index problem,” said Dave Nadig, chief executive officer of ETF.com, an independent subsidiary of CBOE.

    Traditional fixed-income indexes remain in an equity-informed paradox — those entities with the greatest need or willingness to use debt financing dominate because their securities, in turn, tend to be ones that are most available.

    Try though it might, the maturing fixed-income ETF market just can't seem to escape the drab notions of plain-vanilla exposures defined by credit quality and duration. (In fact, Janus Capital Management actually introduced a short-duration income ETF in November under the ticker “VNLA.”)

    “A handful of asset managers, including Invesco Powershares and Deutsche Bank, are bringing out products that reconsider bond index factors and weights, but there hasn't been much traction,” said Mr. Nadig.

    Invesco offers two ETFs built on Research Affiliates' index methodologies that account for economic activity in a country or debt-service capacity for a company.

    Yet, similar to equity ETFs, Mr. Nadig expects to see more narrowly defined bond ETFs enter the market over the next few years with the support of one or two institutions that work with an ETF issuer to design a custom product.

    That doesn't mean that ETF issuers can't deliver innovation in fixed income.

    “VanEck Vectors Fallen Angel High Yield Bond was really the first "smart beta' bond ETF,” said Mr. Nadig. The $767 million ETF, launched in April 2012, tracks a market-value-weighted index of once-investment-grade bonds that have dropped to junk ratings. Mr. Nadig said the company's recently launched VanEck Vectors Green Bond is another niche fixed-income product that could find broad appeal among environmental, social and governance investors.

    David Mann, head of global ETF capital markets for Franklin Templeton Investments, echoed Mr. Nadig's observations on bond indexing and ETF products.

    The company, which manages $282 billion in dedicated fixed-income funds, currently sponsors two actively managed fixed-income ETFs with $221 million in assets between them.

    “As an ETF investor, is your goal to track an index or is it to gain exposure to a certain area of the market?” asks Mr. Mann. “In fixed income, we're seeing a decoupling of ETFs and indexes. The numbers are becoming more compelling for active management."

    Related Articles
    European funds still seeing U.S. market as place to be
    Institutions at odds with retail over SEC's Order Protection Rule
    Many see potential, but few take action
    New index charts growth of thriving financial sector
    New index charts growth of thriving financial sector
    J.P. Morgan names head of U.S. ETF business
    Industrial properties going to pot
    Recommended for You
    Advisors Asset Management brings on head of institutional and alternatives
    Northern Trust appoints global head of digital assets and financial markets group
    terminated_stamp_1550-main_i.jpg
    American Beacon to terminate 3 subadvisers, close midcap value fund
    ESG: Sustainability - Gaining Momentum
    Sponsored Content: ESG: Sustainability - Gaining Momentum

    Reader Poll

    June 6, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Nearing the finish line: Ideas on end-state investing for corporate DB plans
    The Meaning of "Portfolio Intelligence"
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Crossroads: Politics, Inflation, & Bonds
    Is there a mid-cap gap in your DC plan?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    June 20, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit