Siu told attendees that the average daily trading volume of bond ETFs among Canadians has tripled over the past five years, with volumes spiking at times of uncertainty — most recently with Washington’s decision to apply an array of tariffs on trading partners globally.
The global bond ETF market reached US$2.6 trillion in assets last year, Siu reported, representing about 2% of the bond market. BlackRock projects it will grow to US$6 trillion by 2030. By comparison, equity ETFs represent about 10% of the overall stock market.
Current bond yields also present Canadian investors a “generational opportunity,” Siu said, quoting BlackRock’s CIO of global fixed income, Rick Rieder. Both leaders see a “golden era” for fixed income, where investors can harness high levels of yield without a lot of added risk.
Investors have taken note. Last year was a record year for inflows, about US$437 billion, capturing 40% of all bond investments in 2024.
“Yields have continued to be attractive for investors who are looking to deploy capital to lock in those yield levels,” Siu said. “We’re kind of on pace for another record year in terms of global inflows as well as Canadian bond ETF inflows.”
In a separate session later in the day, Naoum Tabet, fixed-income investment director with Capital Group Canada said he was “shocked” to see that Canada, year to date, has seen $7 billion in inflows to multi-sector high yield and global credit ETFs.
“You can get a multi-sector income strategy, like our [Capital Group Multi-Sector Income Select ETF Canada] CAPM ETF, it will yield you close to 7%,” Tabet said. “That’s an insane amount of yield. I’ve been doing this for 20 years, and I’ve never seen something yielding 7% that five years ago would yield 3.5%.”
Advisor strategies
Within the larger market, actively managed bond ETFs, term-maturity bond ETFs and money market and ultra short-term bond ETFs are seeing particular interest, Siu said.
She shared several fixed-income strategies and ways advisors are using bond ETFs in client portfolios.
One way is using bond index ETFs as low-cost building blocks, giving advisors room to allocate their “fee budget” to potentially higher return fixed-income investments.
“We know that cost management is becoming an increasingly important part of how advisors build their practice over time,” she said. Starting with a core of index ETFs can free up some of the fee budget to invest in products with “more differentiated alpha strategies where they have conviction in the manager to consistently deliver on their objective over time,” Siu said.
Blending index and active bond ETFs can help deliver a more balanced and better outcome for investors, she said.
Active management
Actively managed bond ETFs represent a fast-growing segment of the market, Siu said. Globally, assets have doubled over the last two years to reach US$420 billion.
While most actively managed funds seek to outperform a specific benchmark index, others are outcome-oriented, she explained (seeking to achieve a level of income, for example).
“We are seeing more investors … interested in that more precise payoff profile,” she said, citing “buy-write” strategies — also known as covered calls — as one example of an outcome-oriented ETF.
“These are strategies where you could get exposure to an underlying bond ETF, a popular one being the iShares 20+ Treasury Bond ETF (TLT). And then within the wrapper, there’s also a call option that’s sold against the ETF to enhance income to the underlying investor,” she said. “You get the income from selling that call option consistently. And then there’s also a more precise profile that investors can expect from holding that type of strategy.”
Term-maturity bonds, which mature in a specific year, give investors a similar experience as owning an individual bond, Siu said. “You know when the bond ETF is going to mature, and you know the principal or the amount that you’re going to get back when it matures.”
While it provides certainty of outcome, it also has all the benefits of an ETF, including liquidity and the ability to scale in and out of the exposure on a daily or intraday basis, Siu said. “We’ve seen many advisors utilize it as a way to put GIC or cash to work — so you can kind of ladder these as you need, when you know you need cash for a specific year.”
Diversification and precise exposure
Another benefit of the expanding options available in fixed-income ETFs is diversification, as well as being able to seek precise, specific access to an asset class.
“We’re seeing bond ETFs providing exposure to parts of the bond market that were historically harder to reach. We’ve seen recent launches, for example, providing access to things like triple-A CLOs,” she said.
“We do think that going forward, there is going to be continued space for bond ETFs to be launched that will provide more granular, more precise exposures,” Siu said. Investors … want to use bond ETFs to build portfolios in a more precise manner, allowing them to be selective and to be nimble in how they’re managing their overall risk.”
On a more basic level, Tabet also noted that wealth managers are usually diversified on the equity side, but less so on the fixed-income side.
“They have a lot of global equity, but most of their fixed income is Canadian fixed income. … Canadian fixed income is three sectors — energy, utilities and financials. Financials lend money to energy companies who feed utilities. So, you’re highly correlated…” he said.
“If you have Canadian equities, match that with Canadian bonds, it makes sense. If you have global equities match that with global bonds,” he advised.