Displaying items by tag: ETFs

BlackRock's active management has long been the forgotten investment in the firm's giant ETF basket they manage, but things are starting to turn. While the index business hit $10 trillion in the last quarter it was the active funds dring the fee growth in fact in the last quarter of 2021 they were responsible for 60% of the fee growth. The firm has poured lots of resources into their active funds and their active fixed-income has been a huge winner. The firm seems more willing now than ever to place itself as a big active manager where they have always been synonymous with passive investing. BlackRock credits its growth to its own internal push in active management but there has been a huge industry-wide surge in active funds.

FINSUM: Active equity still lags behind for lots of reasons, so its probably best to stick to direct indexing or ETFs in equity markets.

More so than inflation, interest rate risk is the biggest factor in bond markets. If the Fed hikes and Yields rise then that will only lower the value of many bond ETFs. In response, many investors have turned to shorter-duration fixed income. However, the latest surge is off the charts. Lots of money is flowing into ultra-short cash like ETFs with the lowest duration treasuries. Investors are offloading even medium-duration treasuries in the five-three year window. PIMCO’s MINT saw almost $900 million in inflows setting a record week for the fund. Investors are just looking to store capital in the midst of all the interest rate risk in the economy right now.

FINSUM: It's unclear if one rate hike or two will send yields surging high enough, now might be the time to hold medium duration debt as a lot of the risk could be priced in.

The fixed income ETF market took a hit in 2020, and it's been a very slow recovery. Still, active funds outperformed during this time period, and that trend could continue into 2022. A stand-out active bond ETF to consider is Fidelity Total Bond ETF. it’s seen stellar performance when compared to its peers and its managers are committed to ensuring liquidity. Another ETF to watch out for is Pimco enhanced Short Maturity Active ETF. This fund is more centered around stability and security with less risky management. However, avoiding high yield corporate debt and currency risk these factors can make it a safer alternative in the upcoming cycles.

FINSUM: Shorter duration active bond ETFs are really important to consider right now because they mitigate the single biggest risk that exists in bond markets: rising rates.

New survey data is out regarding how investors are utilizing fixed income ETFs and how they are represented in a portfolio. In 2021 Fixed income represented about 18% of global ETF assets under management, and many investors plan on increasing their use going forward. The number one purpose for fixed income ETFs was for liquidity management as 83% of surveyors use them in this way. However, transition management, derivative complementarity, and tactical adjustments were also highly cited reasons for their use. Many draw on fixed income ETFs for liquidity purposes, and this is particularly evident in the bid-ask spreads. Relative to their underlying securities ETF spreads for HYG were 48x smiler than the underlying assets.

FINSUM: It's clear investors aren’t terribly worried about lower yields and rising interest rates, these ETFs are giving freedom and flexibility in investors’ portfolios.

David Booth’s Dimensional Advisors hasn’t been a part of the active ETF market for long in fact just a meager 14 months, but that hasn’t stopped it from rising to the top of the active market. Since last November they have rocketed to over $46 billion in active assets. Overall active management is growing rapidly and going to be a trillion-dollar trend of converting mutuals to ETF’s. However, Dimensional’s newly launched active fixed-income is flying off the shelves with nearly $1 billion in assets since their inception in November. While the lion’s share has been converted, this fixed-income segment is among some of the fastest pure growth in the fixed income ETF market.

FINSUM: Within the ETF segment, active ETFs have been growing strongly, and this is at the forefront of a new trend.