Investor demand for targeted fixed income ETFs is growing, according to BondBloxx Investment Management portfolio manager Benjamin Morris. Speaking with Philippa Aylmer at ETF Express, Morris, who joined BondBloxx last month, explained that the electronification of the markets and increased data transparency are drastically changing the marketplace for bond ETFs.
“Not only are we seeing more fixed income ETF launches, but we are also seeing demand from investors for more targeted fixed income products,” Morris said, adding that increased transparency around individual securities is leading to more transparency around the correlation of securities, which means that more accurate fixed income strategies that target areas of focus and correlation can be developed.
“Up to now, there has not been much focus on specialization within fixed income, unlike in equities. Most fixed income products have just been about looking at a broad sector, aggregate or high yield for example,” Morris added. “However now, rather than thinking at the macro level, we are thinking more granularly. As a result, we expect to see the growth of more targeted fixed income ETF products.”
In February, BondBloxx launched seven U.S. high-yield bond ETFs that offer precise, index-based exposure to the high-yield asset class and allow investors the opportunity to diversify and manage risk to the industry sector. The funds are passively managed and track rules-based sub-indexes of the ICE BofA US Cash Pay High Yield Constrained Index.
BondBloxx was founded by ETF industry leaders Leland Clemons, Joanna Gallegos, Elya Schwartzman, Mark Miller, Brian O’Donnell, and Tony Kelly. The team has collectively built and launched over 350 ETFs at firms including BlackRock, JPMorgan, State Street, Northern Trust, and HSBC.
According to the issuer, more institutional investors are acknowledging the role that fixed income ETFs can play in their portfolios, even during times of volatility. They can offer short-term liquidity while offering a more efficient way to keep portfolios in balance. Sector ETFs enable intentional tactical tilts to be added to their portfolios. They can also enhance price discovery, even when transparency is low or the underlying securities are not trading.
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