“Regulatory change is certainly important” to boost the appeal of bond ETFs, Wirtala said.
ETF issuers like BlackRock Inc., The Vanguard Group Inc. and SSGA would appear to be on board, as evidenced by letters each submitted to DFS last fall regarding the then-proposed DFS regulatory change.
In an October 6, 2021 letter to DFS expressing support for the proposed regulations, BlackRock stated that bond ETFs have “transformed the way many institutional investors access the corporate and government bond markets” and that many investors view them as “a direct complement or substitute for individual bonds.
Bond ETFs are “key investment and risk management tools that can perform more effectively than individual bonds, particularly during times of market stress,” the letter says, a strength that the letter says was demonstrated during the March 2020 COVID 19 related market volatility.
Big ETF issuers — especially BlackRock, which managed $715 billion of fixed-income ETFs globally as of March 4 — have been pushing hard with regulators to help make bond ETFs more attractive to investors. insurers, according to Chicago-based director Ben Johnson. of global exchange-traded fund research for Morningstar Inc.
BlackRock declined to comment beyond its letter.
“ETF issuers have a vested interest in selling more ETFs,” Johnson said. “So they’re going to kick down every door they can knock down. Of course, they’ll knock politely first.
The insurer market is “a significant market, particularly for fixed-income ETFs,” he said.
For insurers, “it’s all about asset-liability management and cash flow and liquidity,” said Gregory H. Cobb, vice president, investment strategy at Sage Advisory Services, Ltd. Co., an independent investment advisory firm with over $17 billion. in assets under management or advice.
“And you really can’t manage assets and liabilities very well with stocks,” said Cobb, who is also director of insurance solutions at Austin, Texas-based Sage.
A portfolio of individual bonds allows insurers to hold securities whose cash flows and maturities are tailored to match insurers’ expected cash flows and liability flows, Cobb said.