BlackRock’s head of iShares U.S. wealth advisory Michael Lane is frequently asked by clients about how to respond to the confluence of two big issues happening in the ETF industry: consolidation of the financial advisor business and the model marketplace.
Speaking with NYSE’s Judy Shaw for ETF Leaders, powered by the New York Stock Exchange, Lane said there’s “a lot of consolidation” in the RIA space. On top of that, advisors are “turning more to models.”
“Those two trends are coming together, causing an increased need for liquidity when they’re trading ETFs,” Lane said at Exchange 2023.
When thinking about fixed income, Lane said it’s important to think about “the liquidity of those fixed income ETFs.” And while he pointed out that “sometimes bigger isn’t always better,” in the case of iShares, “it is,” since the investment management giant has 115 different choices for fixed income ETFs. Of those funds, 18 ETFs have more than $10 billion in assets, and 45 fixed income ETFs have more than $1 billion in assets.
“We can solve their liquidity problem,” Lane said.
As for which ETFs investors should consider, Lane said “it depends on what their needs are.”
“I’m a big believer that you first have to understand what your goal is,” he said, adding: “Once you understand what your objective is… then you can start to look at what types of investments you want to purchase.”
So, according to Lane, if an investor “just wants income and very little interest rate risk right now,” then he would recommend looking on the shorter end, and looking at ETFs like the iShares Short Treasury Bond ETF (SHV) or the BlackRock Ultra Short-Term Bond ETF (ICSH), funds with “very low interest rate sensitivity but yielding more than 4.5%, so good income for a short period of time.”
For investors “concerned about interest rates going up,” then Lane would recommend a floating rate bond fund like the iShares Treasury Floating Rate Bond ETF (TFLO), which has “low interest rate sensitivity.”
And finally, Lane said: “If you’re somebody that doesn’t mind taking a little bit of risk [and] you have a… longer time period, you can extend your duration a bit, which means you have a little bit more interest rate sensitivity.” But if the investor is in a position to take on a little more credit risk, “you can right now get yields over 7%.”
iShares’ suite of 400 different ETFs are available on iShares.com.
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