Exchange traded funds help investors efficiently gain exposure to the often hard to access, illiquid fixed-income markets. Instead of juggling thousands of individual bond securities, BlackRock has been advising clients to tactically allocate into a handful of bond ETFs. At the recent Barclay's Financial Services conference, BlackRock CEO Larry Fink shared an anecdote about a vexed client who "'had 4,000 items of fixed income securities in their portfolio … It's very hard now to navigate the fixed income market -- it is so illiquid right now,'" reports Herb Greenberg for CNBC.
As an alternative, BlackRock proposed that the client switch out the 4,000 securities for six different fixed-income ETFs.
From the Greenberg article:
"So instead of having 4,000 items this client now has six ETFs and now they are tactically trading different ETFs," Fink said. "One of them can be an emerging markets ETF in fixed income, one can be credit, one maybe government -- and this client is moving around tactically and the client is saving money related to line items [and] doesn't have 4,000 to worry about."
For instance, an investor can diversify with the iShares JPMorgan USD Emerging Markets Bond Fund (NYSEARCA:EMB), iShares Barclays Credit Bond Fund (CFT) and the iShares 10+ Year Government/Credit Bond Fund (GLJ). From the CNBC article (linked above):
"And I believe this is going to transform the fixed income market, as more and more clients are going to say: I can't make it," Fink added. "And if this happens we are going to see the whole fixed income market to be transformed more."
Max Chen contributed to this article.
Disclosure: I am long CFT, EMB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Tom Lydon's clients own CFT and EMB.