In contrast, the ETF outlook is much rosier. Among advisors that have between 15% to 29% of client assets in ETFs, 60% of those surveyed expect to increase usage of bond ETFs and 45% of them plan to diminish exposure to bond mutual funds.
Fueling the ongoing growth of bond ETFs, iShares fixed income strategist at Blackock Karen Schenone argued that many advisors are discovering bonds ETFs offer the same benefits as equity ETFs – a low cost and tax efficient way to invest.
“CFRA thinks the forward looking trends have as much to do with investor expectations of higher interest rates and aiming to use products to tilt their portfolios to protect the downside, while still generating income,” Rosenbluth said.
For instance, investment-grade bond ETFs are used the most by advisors at 77%, ahead of other investment styles such as short-term bond 70%, high yield bond 67% and government bond/US Treasury’s 55%. However, among surveyed advisors, 28% expect to increase exposure to short-term, 28% to high yield and 27% to investment-grade bond ETFs, compared to just 16% of those surveyed for government bond/US Treasuries.
“Schenone of iShares thinks we’re only in the second inning of advisors using bond ETFs across their practice,” Rosenbluth added. “CFRA agrees the environment is ripe for bond ETFs to gain additional assets in the next few years as advisors gain comfort with these passive and active products.”
For more information on the fixed-income market, visit our bond ETFs category.