The Success of Fixed-Income ETFs: A Discussion with Todd Rosenbluth

U.S.-listed ETFs have been on a roll in the first half of 2023, with a net inflow of just over $200 billion. However, what’s even more impressive is the success of fixed-income ETFs, which have gathered 49% of new money during the same period. This surge in interest in fixed-income ETFs has caught the attention of investors and experts alike.

Todd Rosenbluth, the Head of Research at VettaFi, recently joined Yahoo Finance Live to discuss the success of fixed-income ETFs and how investors can benefit from this trend. According to Rosenbluth, the influx of money into fixed-income ETFs can be attributed to the uncertainty in the interest rate environment and the overall economic landscape. Investors are seeking stability and security in their investments, making fixed-income ETFs an attractive option.

Among the big winners in the fixed-income ETF space are iShares, with their popular ETF TLT, which focuses on 20-year Treasury bonds, and Vanguard’s BND, the Vanguard Total Bond Market ETF. Additionally, actively managed fixed-income ETFs offered by firms like Capital Group and Fidelity have also seen significant success in attracting assets. These actively managed ETFs aim to outperform the broader market and provide investors with a more hands-on approach to managing their fixed-income investments.

Rosenbluth believes that there is still a significant amount of money waiting to be invested in fixed-income ETFs, especially as investors look for ways to navigate the current economic uncertainties. He predicts a potential rotation into active fixed-income ETFs in the near future, as investors become more comfortable with this investment option.

One key factor that could drive the shift towards actively managed ETFs is the upcoming Federal Reserve meeting at the end of July. As the Fed’s decisions have a direct impact on interest rates and the overall economic outlook, investors may turn to actively managed ETFs to help them navigate these uncertain times. Actively managed ETFs offer professional expertise and decision-making, which can be valuable in times of market volatility and economic uncertainty.

While the success of fixed-income ETFs is undeniable, there are potential risks to consider, especially as the Fed remains data-dependent and could make decisions that impact interest rates. Investors need to be mindful of the interest rate sensitivity of their fixed-income investments and consider actively managed ETFs that can adjust their strategies based on market conditions.

In addition to fixed-income ETFs, Rosenbluth also highlighted the popularity of equity strategies like QUAL, an iShares ETF that focuses on high-quality blue-chip companies with strong balance sheets and consistent earnings records. This ETF has seen increased interest from investors looking to reduce risk and invest in stable, cash-flow positive companies.

Overall, the success of fixed-income ETFs in the first half of 2023 signals a growing trend towards stability and security in investment choices. As investors continue to navigate the uncertainties of the market, actively managed ETFs and high-quality equity strategies may offer valuable opportunities for growth and diversification in their portfolios.