The “ETF-ization of everything” is an ongoing theme here at Abnormal Returns. It represents one of the big thorns in the side of the rise of ETFs. In short, the ETF industry in its drive to create new and novel ETFs is in fact changing the underlying nature of markets themselves. Let’s look at a new example.

It is no secret that I am a big fan of target date maturity bond ETFs. They help bridge the divide between bonds and bond funds and provide a useful tool for investors looking to build out their bond portfolios. The ETF industry has noticed as well. ETF giant Blackrock ($BLK) is launching a series of target date corporate bond ETF with the explicit hope that they get used by institutional investors and banks to help manage their exposures. From a Reuters report:

The new ETFs are designed to simplify the task of institutional money managers like bank treasurers, who currently must juggle hundreds or even thousands of distinct bond issues in their portfolios, BlackRock President Robert Kapito said on Wednesday…

“I think this will be the biggest product that’s ever hit the fixed income market,” Kapito said, speaking at a Credit Suisse conference in Miami.

It seems that the entire bond ETF landscape is becoming more institutionalized as the former liquidity providers, bank bond desks, continue to reduce their exposure. Julie Segal at Institutional Investor looks at how asset managers are now using ETFs in this new environment. Segal writes:

Exchange-traded bond funds are on a roll. They gathered $70 billion last year, a 31.4 percent increase over 2011, according to New York-based asset manager BlackRock. The obvious explanation is that investors want low-cost, transparent strategies for their savings. But there’s another reason for the soaring popularity of fixed-income ETFs. Money managers, advisers, pension funds and insurance companies are using these easily traded funds to prepare for the day when interest rates begin climbing, bonds lose value and investors scramble to sell into a market still largely dependent on weakened Wall Street dealers.

So you can see how target-date maturity bond ETFs would be attractive in this new bond market regime. Does that mean investors should avoid target-date maturity bond ETFs? Not necessarily, but you should at least be aware that that the nature of the marginal “investor” in this market is changing and they have very different goals than you.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Please see disclosures here.

Please see the Terms & Conditions page for a full disclaimer.