At The Money: How Fixed-Income Investors can use ETFs to their Best Advantage.

**Barry Ritholtz** (0:21)
Investors who are looking for yield were once required to purchase individual bonds or mutual Let's go to the next part of the podcast. Barry Ritholtz, at the Money. Barry, I'm Barry Ritholtz, and I'm here to talk to you about how you can use ETFs to make money on fixed income funds. Today, ETFs have changed the fixed income market just as surely as they've changed the equity markets. Investors can purchase low-cost bond ETFs in just about any flavor you can imagine.
I'm Barry Ritholtz, and on today's edition of At the Money, we're going to explain how fixed income investors can use ETFs to their best advantage. To help us unpack all of this and what it means for your portfolio, let's bring in Steve Laipply. He's managing director at BlackRock and global head of iShares fixed income ETFs. Previously, he was the head of iShares fixed income strategy. He helps to oversee more than a trillion dollars in fixed income assets. So Steve, let's just start simply.
Why ETFs? What are the advantages over bonds, separately managed accounts or mutual funds?

**Steve Laipply** (1:28)
Good to see you, Barry. Thanks for having me. So this has been a bit of a journey that spans decades actually. And so to really understand the power of bond ETFs, you have to kind of go back before they existed. So let's call that kind of late 90s. The very first bond ETF came out in Canada in the year 2000 and then in the US in 2002 But if you go back to the 90s, buying bonds was a non-trivial exercise. And the way it was done, it was a very much voice driven market. Pick up the phone, you call several people, you get several quotes, hoping the market's not moving on you at the same time. Not quite sure if you exactly got the best price.
There was very little transparency, et cetera, et cetera. And kind of uneven access. So depending on who you were and what kind of wallet you had, you might get different treatment. And so that was a problem for some investors, not for all, for investors who had access. Maybe they viewed that as an advantage, but for a lot of us, it was really challenging to build a high quality diversified bond portfolio. So what do bond ETFs do?
They actually opened that whole world up to transparency. You basically now had not even a single bond, but a portfolio bonds that trade on exchange. You know what's in it. You could see the price on exchange every second ticking by. So you don't have to pick up the phone and call people. You just simply can trade on exchange and you know you're getting the best price that's quoted on exchange. Now again, like anything, you have to use proper discipline when executing orders, etc. But it was just a shocking revolutionary thing to be able to trade bonds on an exchange.

**Barry Ritholtz** (3:19)
So that makes a lot of sense. I remember when this market was very dealer driven, but there was always an option, or at least over the past, let's call it 40 years, an option of bond mutual funds. There are obvious advantages for equity ETFs over equity mutual funds.
How does that translate to fixed income ETFs? What are their advantages over fixed income mutual funds?

**Steve Laipply** (3:47)
Well there are a couple.
You know, mutual funds still play a role. You'll tend to see them in 401Ks and things like that. That's more of an architecture thing. But away from that, mutual funds price one time a day, at the end of the day, right? So you don't know in the middle of the day, really what the valuation is. And so I think a lot of advisors and investors have found the idea of being able to trade intraday at a known price really attractive. Because as you can imagine, you know, Barry, let's just say you get, you know, a strong inflation number or, you know, an employment reporter or what have you, and you want to move on that, you could put in an order for your mutual fund and sure, that'll get filled at the end of the day. You really don't know at what value. Bond ETF, you can just go on exchange immediately and you can decide whether that's the right price or not and you can act on it. So there's that. The second part of it would just be the transparency issue.
For mutual funds, you may, you know, have, you know, quarterly reporting or what have you, as opposed to daily for most bond ETFs. And that includes active strategy. So a lot of investors are attracted to that daily transparency as well.