Kathy Jones, senior vice president and chief fixed-income strategist at the Schwab Center for Financial Research, argued that individual investors are growing more comfortable with fixed-income ETFs. Assets under management on the Charles Schwab platform show U.S. fixed-income ETFs on its brokerage platform rose to $64.1 billion in 2017from $49.4 billion in 2016.
Jones also revealed that most of the new money flowing into bond ETFs are going into those with shorter durations, or bonds with a lower sensitivity to changes in interest rates, which is especially relevant giving the Federal Reserve’s tightening monetary policy outlook. Rising interest rates have a negative impact on bond funds, notably those with a long duration. With short-term bond funds, investors can stay invested in fixed-income assets to hedge equity market risk and mitigate rate risks.
“I think people are very aware of the potential for interest rates to move higher, so they’re being more tailored about their fixed-income exposure,” Heather Brownlie, a managing director at BlackRock and global co-head of fixed-income at iShares, told the WSJ.
For more information on the fixed-income market, visit our bond ETFs category.