“The new generation of advisors using fixed-income ETFs are bond buyers,” Daniel Gamba, head of iShares Americas institutional at BlackRock, said in the article. “What they wanted is a security or a fixed-income ETF that behaved more like a bond, in a sense that they wanted an instrument that provided them with income but that had a fixed maturity.”
Consequently, investors can use target maturity ETFs to reduce interest rate risk in periods of rising rates because the funds do not roll maturities.
In comparison, other types of fixed-income, or aggregate bond, ETFs hold varying bond securities with different maturities, and they do not liquidate holdings to return cash back to investors upon maturity.
According to a Casey, Quirk & Associates white paper, around $1 trillion in traditional fixed-income assets, including core bond, government and benchmark-oriented strategies, will shift over to debt strategies designed to protect against inflation and rising rates.
For more inforation on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.