TABB research analyst Colby Jenkins also believes large portfolio managers are utilizing ETFs to smooth out exposure during redemption periods. According to TABB researchers, an investor would only pay 0.01% to 0.03% to trade a liquid corporate bond ETF, whereas certain hard-to-find securities could cost as much as 1.03%.
“A 5-10% liquidity sleeve in corporate bond ETFs that tracks to a diversified portfolio of bonds is becoming a popular tool among asset managers to efficiently manage their investment flows,” Jenkins said.
Meanwhile, Large institutions are holding onto ETFs until they find the appropriate cash bond alternative. The Bond ETFs are popular among investors for their low fees and ease of trade. [Liquidity Concerns in Corporate Bond ETFs]
“This is a way to achieve market beta while the single-name search process carries on,” Jenkins added.
For more information on corporate debt, visit our corporate bonds category.
Max Chen contributed to this article.