Valerie Grimba:
Hi, my name is Valerie Grimba and I run RBC Capital Markets Global ETF Strategy Team. And today we're welcome to be in conversation with a true leader in the space, Helen Hayes, Managing Director and Head of iShares Canada.
So Helen, so far in 2023, we've seen fixed income ETF flows far outpaced equity ETF flows. What are your thoughts on the renewed interest in the space?
Helen Hayes:
So first off, thanks for having me, Val. It's great to be here today and spend time with you talking about the ETF space. This year has been highly unusual from start to finish, and what we've really seen is renewed interest in fixed income and as a result really of the fact that when we think about fixed income yields at this point, they're at a decade high. So when we think fixed income, income is back within fixed income ETFs. And from our perspective, we saw record inflows in Q1 into fixed income ETFs in Canada, and at iShares, our iShares core Canadian government bond index ETF XGB saw record inflows.
So I think from an institutional perspective, what we've been seeing is when a PM is looking at their asset allocation, fixed income ETFs make the market incredibly accessible. So you can wake up in the morning and look at your portfolio and decide you want a certain exposure. Fixed income ETFs allow you to do that very efficiently and with a lot of liquidity.
Valerie Grimba:
And with that efficiency, how should investors be thinking about using fixed income ETFs as building blocks within the portfolio?
Helen Hayes:
Well, I think this is a really important question because again, going back to asset allocation and those building blocks, we at BlackRock have definitely been recommending that investors look at the front end of the curve. So for short term duration and in order to play that yield in a very efficient manner within the portfolio, iShares floating rate index CTF or XFR, as well as iShare's core Canadian short-term corporate bond index, CTF XSH, are two areas where we've seen a lot of interest and allow that end investor, whether you're institutional or from an advisor or retail perspective, to have those building blocks within the portfolio where you're getting the exposure, but you're also getting the yield.
Valerie Grimba:
With those current market conditions and interest rates potentially peaking right now, what should investors be thinking about fixed income ETFs for the balance of 2023?
Helen Hayes:
The Bank of Canada really indicated in late January that they were potentially looking to pause. The Fed in May also alluded to the fact that they were going to start slowing down from a rate increased perspective. We've talked already that certainly this year has been expect the unexpected. And from that perspective, when I think about how people have been positioning, again, that fixed income sleeve really allows people to build the asset allocation and get the exposure from a perspective of how to layer in their bond portfolios.
And what we're recommending to people from an asset allocation perspective is a ballast. And that is really building your portfolio with short-term ETFs like iShares core Canadian short-term bond index XSB, as well as a medium-term allocation within your portfolio, really playing the spectrum from a perspective of how to build that exposure within an institutional portfolio. So iShare's core Canadian universe bond index CTF XBB has been a really popular choice.
Again, it is about liquidity, it's about trading efficiency, and the fact that from an equity diversification perspective, fixed income ETFs allow that liquidity sleeve around an equity diversification strategy for an institutional client.
Valerie Grimba:
Lastly, a bit of a fun one. What's your best piece of advice for investors when they're thinking about using an ETF?
Helen Hayes:
Yeah. So if you look at the evolution of ETF adoption, especially within institutional portfolios, what we've actually seen is on a daily basis when you look at Canadian market flows, ETFs make up about 15% of those flows. And that's a number that we really view is going to continue to increase. So I think from an institutional perspective, it is all about asset allocation. How do you want that efficient exposure within your portfolio that's transparent, that's extremely liquid, and that's really accessible?
So if you are building your institutional building blocks within your portfolio and you think about construction, you can get any type of efficient exposure through an ETF globally, not just with iShares, but generally across the market. So that efficiency really allows you to tailor an expression from an investment perspective within your portfolio.
So my advice is that especially from an institutional adoption, I think fixed income ETFs have revolutionized the overall market. I think from an equity perspective, again, when you are a sophisticated portfolio manager, you can utilize ETFs from an equity diversification perspective within your portfolio really to build out that expression, whether it's short term, medium, or long term.
Valerie Grimba:
Great. Thank you so much, Helen, for joining us today.
Helen Hayes:
No problem, Val. Great to see you.