ETF Prime: Todd Rosenbluth on Bond ETFs and Inside ETFs

The conversation opened by talking about Rosenbluth’s recent piece on VettaFi regarding bond mutual fund outflows while bond ETFs experienced new inflows in 2022. As of the end of May, year-to-date bond mutual funds experienced $240 billion in outflows while bond ETFs have brought in over $60 billion in new money.

“What was compelling to me, what made me decide this was worth writing about for VettaFi, was that the differential was strongest in May: bond mutual funds had outflows exceeding $90 billion, whereas bond ETFs gathered $34 billion,” Rosenbluth said.

The bond ETF inflows in the month of May were the equivalent of all inflows into bond ETFs in the first four months of 2022. While there is a well-established trend in the U.S. of moving away from mutual funds and into ETFs, the bond space has been a holdout until recently.

Rosenbluth chalked it up to the re-evaluating that is going on right now for advisors and investors as to their portfolio allocations, as well as the tax loss harvesting opportunities from selling out of a bond mutual fund and moving into a bond ETF that currently offers tax benefits and higher yield opportunities.

“Mutual funds are just not the game that they used to be; they’re not the only player in the space, and they now have ETF competition,” Rosenbluth explained. “It’s why we think we’re likely to see an acceleration of bond ETFs as the year progresses, unless we see bond losses from mutual funds shrink sharply."

Talk then pivoted to the Inside ETFs conference and the focus on ETF due diligence, ESG, and the importance of advisors and investors understanding exactly what is within their portfolios. The two talked about the proposed SEC regulations in ESG, the subjectivity of ESG in the U.S. currently, and Rosenbluth’s panel at the conference on ETF due diligence by advisors.

Geraci went on to play several excerpts from many of his discussions with fellow attendees at the Inside ETFs conference. While the actual conversation topics varied, they all centered around the idea of due diligence in ETF investing.

Geraci spoke with Jillian Delsignore, FLX Networks’ managing director and head of advisor sales and ETFs, about the dangers of investors and advisors focusing on ETFs as a cheap beta play for broad index exposure; with Phil Bak, founder and CEO of at Nav, on how the past decade of market performance has created a level of complacency for advisors; and with Ryan Krueger, CEO and co-founder of Freedom Day Solutions, about the increasing number of advisors who are popping the hood on the funds in their portfolios.

Geraci also spoke with Dodd Kittsley, national director at Davis Advisors, regarding active management and how the shift from growth to value isn’t a blanket one; with Jack Vogel, CFO and co-CIO for Alpha Architect, about how Alpha Architect works with advisors to better understand the ETFs the company offers; and with Matt Barley, RICP, director and advisor sales at Magnifi by Tiffin, about the tools the company has created to aid with ETF due diligence, including AI and natural language software.

D.J. Tierney, senior investment portfolio strategist at Charles Schwab, discussed the company’s low-cost approach to ETFs as well as the tools that it provides to aid in due diligence which not only consider the ETF but also the provider. Last on was Chris Sullivan, president at MacMillan Communications, who talked about the reflection on the PR and media side of the industry’s transition away from broad-based funds and into new and innovative strategies and the appetite that exists by advisors and investors to learn about new strategies.

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