ETFs were created with equities in mind, but a lot of fixed-income products have been launched recently that have garnered much investor interest. What’s the reason?
If Matthew Tucker, head of fixed-income strategy at Blackrock’s iShares units is to be believed, these ETFs have grown in volume since they were launched over a decade back.
Due to greater liquidity, they have started to attract pretty much every investor to the bond market, including private investors, institutional investors, wealth managers and individual investors, who are trading in fixed income ETFs now, much like equity ETFs.
Fixed-income products have democratized the credit market and individual investors who can’t access the high-yield bonds or corporate bonds market because the transaction costs are very high, can buy high-yield products like HYG with 450 high yield securities combined to create the fund.
The investor can control the bid-offer spread and it gives a lot of people access to an asset class which was previously out of bounds because of high barriers to entry.
Additionally, fixed-income ETFs are attracting money, which was earlier locked up with index funds because it gives investors specific exposure; e.g. – if an investor wants to invest in US Treasuries, he can buy fixed-income ETFs, which buy only US Treasuries.
Similarly, investors can buy high-yield bond products, non-US debt products, i.e. – it’s the precision and predictability that the investors have been drawn to. In other words, it’s not only about creating income, it’s also about customizing exposure. You can watch the video here.
Disclosure: No holdings
Contact Ulli