Katy Burne, writer for the Wall Street Journal, recently wrote an article discussing the increasing popularity of bond ETFs among institutional buyers (Institutions Pour Cash Into Bond ETFs (subscribers only)). According to Burne, institutional investment in bond ETFs has more than doubled in the past couple years.
I echo the increased usage, comfortability, and precision of many of the bond ETFs that are now available in the market. One might expect this writer, with more than 20 years of institutional fixed income experience, to gravitate towards individual bonds. However, the decreased costs, the increasingly tight markets, and the precision exposure I get with many bond ETFs has captured my attention. If, for example, 2023 maturities of Corporate paper suddenly become cheap versus 2024, in one fell swoop I can move a large part of my portfolios out of 2024 and into 2023 paper, thus capturing the extra yield for my clients. Previously, I'd have to gather up lists of bonds, put them out for bid with the commission bond salesmen, and wait for good bids to come in. The availability of competitive bond ETFs has saved hours of time for me and many basis points for the clients.
Keep an eye on these products. They are increasingly precise, increasingly less expensive, and according to both Burne and me, increasingly popular among institutional buyers.