Thirty years ago, the exchange traded fund was launched. Now, upward of $6.5 trillion is invested in U.S. ETFs and accounted for more than 30% of exchange volume in 2022.
It’s not surprising that ETFs have become so popular among investors. Their benefits are evident: they’re relatively inexpensive, tax efficient, easy to trade, and able to access asset classes easily. They’ve also survived and thrived in many different market environments. Even in last year’s turbulent environment when inflation was the highest it had been since the launch of the first ETF and stocks and bonds facing steep selloffs, many investors moved into ETFs to take advantage of their tax-loss harvesting opportunities.
“This speaks to the organic rise of ETFs and their trading volume since their launch,” according to Vanguard. “And because ETFs trade on an exchange, that exchange volume can make determining prices of an ETF’s underlying constituents easier than on individual securities, notably for fixed income securities.”
“With fixed income ETFs, advisors and end clients get the benefits of trading on an exchange like an underlying stock including price discovery and liquidity but with the stability and income generation of owning bonds. Trading directly with individual bonds is much more cumbersome and opaque,” said VettaFi’s Head of Research Todd Rosenbluth.
While mutual funds still have a place in the investment world, Vanguard argued that it’s likely that the 30-year-old ETF vehicle will continue on its upward trajectory. “ETFs are where most of the new money is going these days and they have increasingly become a hot spot of innovation,” Vanguard added.
Vanguard has a suite of fixed income ETFs to accommodate a variety of investor needs, including the Vanguard Total Bond Market ETF (BND) and the Vanguard Total Corporate Bond ETF (VTC).
BND presents bond investors with an all-encompassing, aggregate solution to getting U.S. bond exposure. The fund seeks the performance of the Bloomberg U.S. Aggregate Float Adjusted Index, which represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.
VTC is a fund of funds that employs an indexing investment approach designed to follow the performance of the Bloomberg U.S. Corporate Bond Index, which measures the investment-grade, fixed-rate, taxable U.S. corporate bond market. The index includes U.S. dollar-denominated securities publicly issued by industrial, utility, and financial issuers. VTC provides diversified exposure to securities with exposure to short-, intermediate-, and long-term maturities.
Speaking at Exchange: An ETF Experience, Vanguard CEO Tim Buckley said that the asset manager’s goal is “to make sure we’re producing the top performing funds and ETFs out there.”
“We’ll wrap it with low-cost, scalable advice and deliver them on a world-class, digitally enabled platform,” he added. “And if you do that well and you can keep improving it, you’ll create value into the future.”
For more news, information, and analysis, visit the Fixed Income Channel.