Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Artificial Intelligence
    • Consultants
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • SECURE 2.0
    • Special Reports
    • Washington
    • 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
    • Influential Women in Institutional Investing 2023
    • 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
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • 2023 ESG Investing Conference
    • ESG Rated ETFs
    • Divestment Database
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • DC Plan Design: Improving Participant Outcomes
    • 2023 Defined Contribution East Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
  • Print
Breadcrumb
  1. Home
  2. EXCHANGE-TRADED FUNDS
September 03, 2018 01:00 AM

Fixed income stakes out its corner in ETF universe

Ari I. Weinberg
  • Tweet
  • Share
  • Share
  • Email
  • More
    Robert Smith urged investors to scrutinize fixed-income ETF parameters.

    With the Treasury yield curve flattening, the breadth of the U.S. fixed-income exchange-traded fund market has been on full display this year.

    Unlike last year, in which the predominant trade was into broad-based, medium-duration products such as the iShares Core U.S. Aggregate Bond ETF or the Vanguard Intermediate Term Corporate Bond ETF, fixed-income ETF flows indicate an investor preference for shorter-duration products.

    "Ultrashort and floating-rate ETFs are punching above their weight," said Eric Balchunas, Princeton, N.J.-based senior ETF analyst for Bloomberg Intelligence. Several ETFs, such as the SPDR Bloomberg Barclays Investment Grade Floating Rate ETF and the Schwab U.S. TIPS ETF, have more than doubled their asset base in the past year to $3.8 billion and $5.7 billion, respectively.

    Even over a year when nearly 50% of existing fixed-income ETFs have posted negative returns, according to Bloomberg, asset growth has been strong across the board. According to data from research firm XTF Inc., 16% of the $600 billion invested in U.S.-listed fixed-income ETFs has arrived in the past 12 months, compared with 7.8% of the $2.89 trillion invested in equity products.

    But the shift to fixed-income ETF products more in line with a growing U.S. economy and increasing short-term interest rates is not indiscriminate. Performance still matters.

    Over the past few years, ETF issuers have explored more creative areas in the fixed-income market, launching products that attempt to hedge interest rate risk, are designed for negative duration, or are built on inflation expectations with a long/short strategy. Several of these ETFs, though small in asset base, have returned between 5% and 15% this year alone, according to Bloomberg.

    Mr. Balchunas highlights the difference between the $7 billion passively managed Invesco Senior Loan ETF and the $3 billion actively managed SPDR Blackstone/GSO Senior Loan ETF. The latter has added $1.5 billion in assets over the past year, while sporting a 4.3% annual yield, according XTF. It also outperformed the Invesco Senior Loan ETF, which experienced a $1.5 billion outflow against a 3.76% yield.

    Also notable in flow data is the $10.8 billion iShares Floating Rate Bond ETF, with the ticker symbol FLOT, which added $4.2 billion year-to-date, making it the third-largest inflow among all fixed-income ETFs. According to BlackRock Inc., FLOT has a weighted average coupon of 2.96%, an effective duration of 0.15 years, and a 0.2% expense ratio.

    "FLOT is more potent when it comes to reducing portfolio duration and it benefits directly from rate increases compared to other investment-grade short-duration ETFs," said Chris Mirrione, senior portfolio manager at Alesco Advisors, an institutional adviser in Pittsford, New York, with $4 billion in assets under advisory.

    "Let's not forget that the core purpose of a fixed-income portfolio is to dampen volatility," said Mr. Mirrione, noting that in a rising rate environment, fixed-income portfolios with longer duration themselves become a source of volatility.

    "The last six to nine months in fixed-income ETFs have been about disaggregating" the aggregate bond index, said Robert Smith, president and chief investment officer of Sage Advisory Services Ltd. in Austin, Texas. "And investors who use ETFs have to take a look at what's available and viable in this market."

    Mr. Smith, whose firm has nearly $13 billion in assets under advisory in fixed-income and tactical ETF strategies, expects one to two more interest rate moves — with the potential for yield curve inversion — as other macro trends are actually keeping the longer end of the yield curve "tamped down." He points to the confluence of demand for liability-driven investment and dollar-denominated securities, and the recent flood of corporate supply that fueled dividends and buybacks.

    As institutional investors look at the fixed-income ETF landscape, including mortgage-backed securities, Treasury inflation-protected securities, and short and ultrashort duration funds, Mr. Smith said they need to be mindful of "what's inside the box: where are the major flows coming from; what does the trading volume look like; who are the other owners?"

    While many in the ETF market like to stress that the liquidity of the ETF is the liquidity of the underlying securities, that is most true in equities and a little more complicated in parts of the fixed-income market. Liquidity in the product still matters and "you don't want to blow up trying to get out of the trade," Mr. Smith said.

    Still, investors who are buying or selling in size can sidestep secondary market liquidity concerns.

    "Improvements in technology and operations have driven an acceleration in portfolio trades," said Stephen Laipply, San Francisco-based head of U.S. iShares fixed-income strategy at BlackRock.

    "This is when investors work with the fund manager and a broker-dealer to contribute (or receive) eligible bonds in exchange for the appropriate ETF."

    Related Articles
    Worldwide mutual fund, ETF net inflows total nearly $2 trillion in 2017 – report
    Growth of ETFs reflects passive shift; 3 largest firms hold 79% of assets
    Market conditions prompt increased focus on value
    Increase in no-fee offerings boosts appeal of ETFs
    ETF providers going in new directions with indexes
    Vanguard hires head of new global ETF research center
    Recommended for You
    Ramaswamy_1550_i.jpg
    Texas Employees dumps Strive Emerging Markets Ex-China ETF
    Global X CEO leaves firm
    wood_cathie_1550-main.jpg
    Cathie Wood's ARK, 21Shares unveil fee on pending spot bitcoin ETF
    Sustainability Strategies: Evolving Perspectives
    Sponsored Content: Sustainability Strategies: Evolving Perspectives
    Sponsored
    White Papers
    A Guide to Home Equity Investments: The Untapped Real Estate Asset Class
    Modernize your K-12 retirement plan with vendor consolidation
    Q4 2023 Credit Outlook: Price Is What You Pay, Value Is What You Get
    There's More Than One Way to Be a Climate Investor
    Exploring the Commercial Application of Artificial Intelligence
    Private Credit Insights: Every Problem Is an Opportunity in Disguise
    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
    October 23, 2023 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 Custom Content
    • 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 © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Artificial Intelligence
      • Consultants
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • SECURE 2.0
      • Special Reports
      • Washington
      • 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
      • Influential Women in Institutional Investing 2023
      • 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
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • 2023 ESG Investing Conference
      • ESG Rated ETFs
      • Divestment Database
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • DC Plan Design: Improving Participant Outcomes
      • 2023 Defined Contribution East Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
    • Print