Greenwich noted that the internal guidelines and external regulations that limit the use of ETFs at institutions are gradually disappearing. Indeed, in April 2017, the National Association of Insurance Commissioners revised its methodology for accounting of fixed-income ETFs. A new systematic valuation method allowed insurers to treat ETFs more like ordinary bonds, which has the potential to reduce the volatility in the company’s balance sheet and income statement.
In 2017, insurance companies increased their assets in fixed income ETFs by a whopping 69% according to S&P Global. Assets held by insurers in iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) more than doubled to $3.6 billion, making it the largest ETF in insurance company asset bases, while iShares MBS ETF (MBB) ended 2017 with $230 million, a five-fold increase from the year before.
CFRA thinks that as insurance companies become more comfortable with the new accounting treatment, usage of bond ETFs will climb considerably higher.
“Both retail and institutional investors continue to embrace bond ETFs as an easy-to-access alternative to the bond market, which has grown increasingly illiquid,” explained Karen Schenone, Fixed Income Product Specialist within BlackRock’s Global Fixed Income Group. “When investors want to put cash to work quickly and efficiently, they are increasingly using bond ETFs.”
CFRA will be discussing equity and fixed income ETF trends during a client webinar on September 26 at 11am. We’ll be joined by industry experts from JPMorgan, iShares and Oppenheimer Funds. To register visit https://go.cfraresearch.com/ETFWebinar20180926 or contact [email protected].
Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.