Why ETFs are winning over bond investors

Exchange-traded funds are attracting new investors to the bond market rather than just capturing mutual fund customers, according to BlackRock Inc.’s Matthew Tucker.

Tucker heads iShares Fixed Income Strategy at BlackRock, which started the iShares iBoxx High Yield Corporate Bond Fund in April 2007. It has grown to be the biggest junk-bond ETF, with $14.3 billion of assets.

These ETFs allow individual investors to speculate on debt ranked below investment grade without owning bonds. Unlike mutual funds, whose shares are priced once daily, ETFs are listed on exchanges and are bought and sold like stocks.

Tucker spoke today on Bloomberg Television’s “Inside Track” with Erik Schatzker.

On how the funds have changed the market:

“ETFs are helping to democratize the entire fixed-income market.”

On the role of actively-managed ETFs:

“Their value proposition has to be clear to investors. We haven’t seen a product that’s come out that’s really met investors’ needs.”

On whether ETFs are taking away customers from mutual funds:

“It’s another way for investors to access the high-yield market. It’s less about mutual funds versus ETFs. We’re attracting a lot of new investors. It’s actually increasing the size of the fund market.”

–Bloomberg