Head of iShares for BlackRock Canada says value proposition is compelling
Demand for fixed income will match and potentially exceed equities in the ETF arena as investors realise the greater value proposition.
That’s the opinion of Pat Chiefalo, head of iShares for BlackRock Canada, who said that while the uptake of fixed income ETFs has been slower so far, the statistics could be reversed as the education process among advisors continues.
The 5th annual ETF industry report by Greenwich Associates, sponsored by BlackRock Canada, showed that Canadian investors have increased their ETF use for equity and fixed income exposure by 82% and 30% respectively.
It also reported that Canadian institutional investors hold 19% of total managed assets in ETFs, up 3.5% year over year and the highest average globally.
Chiefalo said the only surprise among these stats was that there has not been greater adoption and he expects those numbers to accelerate.
He added that transitioning fixed-income attitudes from accessing bonds via traditional over-the-counter markets to now thinking about a basket approach using ETFs on a listed exchange represents a bigger jump than with equities. He believes opinions will change – and have to.
Chiefalo said: “I’m not surprised the fixed-income adoption is a little bit behind. However, I fundamentally believe that the value proposition of fixed-income ETFs is even greater than that of equity ETFs where you are accessing a very transparent market, one that wasn’t really there in the past. They have much lower cost access to underlying securities than you traditionally see in the over-the-counter market, have instant diversification and exceptionally low cost.
“The benefits these products can have are greater, even though through the education process and the conversations that we’re having, it continues to build. It’s not quite there relative to the equity ETFs.
“Equity ETFs were a more natural proposition but I do believe the value proposition of the fixed income ETF is exceptionally compelling and I expect that to certainly catch up and potentially even exceed equities.”
The report also said that versatility was the primary driver of ETF users and had increased in 10 portfolio functions, ranging from core portfolio allocations and international diversification to tactical adjustments and transition management.
Chiefalo stressed the increasing role they are playing in building multi-asset portfolios.
He said: “Traditionally, the conversation focused on individual stock securities or individual fixed-income securities. I think we’ve progressed and modernized our thinking to how we deliver portfolio solutions. The conversations have shifted more towards if I’m looking to fill an exposure to an emerging market, if I’m looking to fill an exposure to European equities or US aggregate fixed income, the conversation we are having is very much on an asset class basis.”
