The head of U.S., Canada and Latin America iShares at BlackRock, Armando Senra, thinks fixed-income exchange-traded funds (ETFs) could double in value in the next five years.
Speaking on CNBC’s ETF Edge, Senra said, “From a cyclical perspective, you’ve seen a lot of flows going into fixed-income ETFs. It’s natural. You have a lot of market volatility. People have a risk-off trade. So, you’ve seen that, and you’ve seen money coming off from equities.”
Senra previously headed BlackRock’s Latin America and Iberia division and sees ETFs as just beginning to step into their own. “It took us 17 years to get to [$]1 trillion in assets. We believe we’re going to double that amount in five years,” he said.
Senra sees fixed-income ETFs following doing the same thing with bonds that equity ETFs have done with individual securities.
“The same thing that you saw with equity ETFs, how people are using equity ETFs to replace individual securities, that’s what you will see with fixed-income ETFs. They’re replacing bonds. They’re providing you liquidity, it’s a more convenient way to have a bond portfolio, and [there’s] efficiency. That’s where the money’s going to be coming from.”
Not everyone agrees with Senra on the bright future of fixed-income ETFs or ETFs in general. Earlier this month Michael Burry of Big Short fame, suggested ETFs might be the next bubble to pop.
John Davi, founder and chief investment officer at Astoria Portfolio Advisors, also doesn’t share Senra’s rosy view. During the same interview as Senra, Davi explained, “The AGG index is providing you a negative real-rate after-tax return. Year to date, it’s up, ... but right now, given where yields are, I think it’s a terrible risk-reward.”
Later he added, “I think you can look at things like muni[cipal] bonds, some securitized mortgage-backed securities where you can get a better return per unit risk. That’s what we do at our firm.”
