Fixed Income ETFs: Investors’ Ticket to Flexibility
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Fixed Income ETFs: Investors’ Ticket to Flexibility

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The ETF snapshot
ETFs during volatility Part 1 of 5
Fixed income ETFs Part 2 of 5
ETF use cases Part 3 of 5
Evolution of ETFs Part 4 of 5
Choosing an ETF Part 5 of 5

The following content is sponsored by iShares

Download the ETF Snapshot for free.

Fixed Income ETFs: Investors’ Ticket to Flexibility

When market volatility surges, fixed income investors encounter multiple pressure points. For example, they may face difficulties with liquidity, price discovery, and transaction costs.

In this infographic from iShares, we show how fixed income ETFs help address these challenges. It’s the second in a five-part series covering key insights from the ETF Snapshot, a comprehensive report on how institutional investors manage volatility.

The Methodology

To assess the role that ETFs play, Institutional Investor published a report in 2021 based on a survey of 766 decision makers. Respondents were from various types of organizations, firm sizes, and regions.

For instance, here is how responses broke down by location:

  • 21% Asia Pacific
  • 36% North America
  • 29% Europe, Middle East and Africa
  • 14% Latin America

Here’s what the survey found.

Encountering Roadblocks

During 2020 market volatility, the vast majority of institutional investors said they had difficulty sourcing (95%) and/or transacting (92%) in individual bonds.

Smaller firms faced these roadblock more often than larger institutions.

Assets Under Management% Who Faced Great Difficulty Sourcing Bonds
$5B or less61%
$5B-$50B46%
$50B+42%

How did institutional investors overcome these liquidity challenges?

Turning to Fixed income ETFs

More than half of institutions increased their use of ETFs as they looked to source, price, and transact bonds. In fact, in the first three months of 2020, fixed income ETF trading volume reached $1.3 trillion—half of 2019’s total.

ETFs also became more popular relative to their underlying basket of securities. During extreme volatility in April 2020, ETF trading volume relative to the underlying securities was three times higher than the 2019-2020 average.

With their higher liquidity, ETFs also helped institutional investors with price discovery.

“When there was no trading activity in certain corporate bonds, you can use the ETFs as a pretty good proxy for what people are willing to pay and what the appetite is.”
—Senior Analyst, Asset Management firm

However, the usefulness of fixed income ETFs goes far beyond liquidity.

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ETF Snapshot

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A Versatile Tool

Institutional investors said fixed income ETFs were a good replacement for individual bonds for a number of reasons.

Reason % of Respondents
Liquidity61%
Quick Market Exposure/Access55%
Avoidance of Individual Security Analysis51%
Transparency of Holdings46%
Transaction Costs40%

The difference in transaction costs is particularly evident in the fixed income landscape. During extreme market volatility in March 2020, the bid-ask spread* for the iShares High Yield Corporate Bond ETF was 48 times smaller than the underlying securities.

* A bid-ask spread measures the difference between what an investor is willing to buy a fund for (the bid price) and the price an investor is willing to sell for (the ask price). A smaller bid-ask spread indicates greater cost efficiency.

In light of these attributes, fixed income ETFs are a go-to tool for institutional investors. In fact, they were top-rated for a number of use cases.

Purpose% of Respondents
Portfolio Rebalancing62%
Tactical Adjustments66%
Derivative Complement/Replacement66%
Transition Management74%
Liquidity Management83%

One senior analyst at an asset management firm noted that it was easy to get granular with asset allocation because there are so many ETFs with plenty of liquidity.

The Future of Fixed Income ETFs

As of May 2021, fixed income ETFs made up 18% of all ETF assets under management. It’s likely that their role could become more prominent in the future.

For instance, 34% of institutional investors are likely to increase their use of fixed income ETFs going forward. One thing is evident: fixed income ETFs have proven to be flexible tools, especially during heightened market volatility.

​​Download the ETF snapshot for free.

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Ranked: Emissions per Capita of the Top 30 U.S. Investor-Owned Utilities

Roughly 25% of all GHG emissions come from electricity production. See how the top 30 IOUs rank by emissions per capita.

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Emissions per Capita of the Top 30 U.S. Investor-Owned Utilities

Approximately 25% of all U.S. greenhouse gas emissions (GHG) come from electricity generation.

Subsequently, this means investor-owned utilities (IOUs) will have a crucial role to play around carbon reduction initiatives. This is particularly true for the top 30 IOUs, where almost 75% of utility customers get their electricity from.

This infographic from the National Public Utilities Council ranks the largest IOUs by emissions per capita. By accounting for the varying customer bases they serve, we get a more accurate look at their green energy practices. Here’s how they line up.

Per Capita Rankings

The emissions per capita rankings for the top 30 investor-owned utilities have large disparities from one another.

Totals range from a high of 25.8 tons of CO2 per customer annually to a low of 0.5 tons.

UtilityEmissions Per Capita (CO2 tons per year)Total Emissions (M)
TransAlta25.816.3
Vistra22.497.0
OGE Energy21.518.2
AES Corporation19.849.9
Southern Company18.077.8
Evergy14.623.6
Alliant Energy14.414.1
DTE Energy14.229.0
Berkshire Hathaway Energy14.057.2
Entergy13.840.5
WEC Energy13.522.2
Ameren12.831.6
Duke Energy12.096.6
Xcel Energy11.943.3
Dominion Energy11.037.8
Emera11.016.6
PNM Resources10.55.6
PPL Corporation10.428.7
American Electric Power9.250.9
Consumers Energy8.716.1
NRG Energy8.229.8
Florida Power and Light8.041.0
Portland General Electric7.66.9
Fortis Inc.6.112.6
Avangrid5.111.6
PSEG3.99.0
Exelon3.834.0
Consolidated Edison1.66.3
Pacific Gas and Electric0.52.6
Next Era Energy Resources01.1

PNM Resources data is from 2019, all other data is as of 2020

Let’s start by looking at the higher scoring IOUs.

TransAlta

TransAlta emits 25.8 tons of CO2 emissions per customer, the largest of any utility on a per capita basis. Altogether, the company’s 630,000 customers emit 16.3 million metric tons. On a recent earnings call, its management discussed clear intent to phase out coal and grow their renewables mix by doubling their renewables fleet. And so far it appears they’ve been making good on their promise, having shut down the Canadian Highvale coal mine recently.

Vistra

Vistra had the highest total emissions at 97 million tons of CO2 per year and is almost exclusively a coal and gas generator. However, the company announced plans for 60% reductions in CO2 emissions by 2030 and is striving to be carbon neutral by 2050. As the highest total emitter, this transition would make a noticeable impact on total utility emissions if successful.

Currently, based on their 4.3 million customers, Vistra sees per capita emissions of 22.4 tons a year. The utility is a key electricity provider for Texas, ad here’s how their electricity mix compares to that of the state as a whole:

Energy SourceVistraState of Texas
Gas63%52%
Coal29%15%
Nuclear6%9%
Renewables1%24%
Oil1%0%

Despite their ambitious green energy pledges, for now only 1% of Vistra’s electricity comes from renewables compared to 24% for Texas, where wind energy is prospering.

Based on those scores, the average customer from some of the highest emitting utility groups emit about the same as a customer from each of the bottom seven, who clearly have greener energy practices. Let’s take a closer look at emissions for some of the bottom scoring entities.

Utilities With The Greenest Energy Practices

Groups with the lowest carbon emission scores are in many ways leaders on the path towards a greener future.

Exelon

Exelon emits only 3.8 tons of CO2 emissions per capita annually and is one of the top clean power generators across the Americas. In the last decade they’ve reduced their GHG emissions by 18 million metric tons, and have recently teamed up with the state of Illinois through the Clean Energy Jobs Act. Through this, Exelon will receive $700 million in subsidies as it phases out coal and gas plants to meet 2030 and 2045 targets.

Consolidated Edison

Consolidated Edison serves nearly 4 million customers with a large chunk coming from New York state. Altogether, they emit 1.6 tons of CO2 emissions per capita from their electricity generation.

The utility group is making notable strides towards a sustainable future by expanding its renewable projects and testing higher capacity limits. In addition, they are often praised for their financial management and carry the title of dividend aristocrat, having increased their dividend for 47 years and counting. In fact, this is the longest out of any utility company in the S&P 500.

A Sustainable Tomorrow

Altogether, utilities will have a pivotal role to play in decarbonization efforts. This is particularly true for the top 30 U.S. IOUs, who serve millions of Americans.

Ultimately, this means a unique moment for utilities is emerging. As the transition toward cleaner energy continues and various groups push to achieve their goals, all eyes will be on utilities to deliver.

The National Public Utilities Council is the go-to resource to learn how utilities can lead in the path towards decarbonization.

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The Road to Decarbonization: How Asphalt is Affecting the Planet

The U.S. alone generates ∼12 million tons of asphalt shingles tear-off waste and installation scrap every year and more than 90% of it is dumped into landfills.

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Road to Decarbonization - How Asphalt is Affecting the Planet

The Road to Decarbonization: How Asphalt is Affecting the Planet

Asphalt, also known as bitumen, has various applications in the modern economy, with annual demand reaching 110 million tons globally.

Until the 20th century, natural asphalt made from decomposed plants accounted for the majority of asphalt production. Today, most asphalt is refined from crude oil.

This graphic, sponsored by Northstar Clean Technologies, shows how new technologies to reuse and recycle asphalt can help protect the environment.

The Impact of Climate Change

Pollution from vehicles is expected to decline as electric vehicles replace internal combustion engines.

But pollution from asphalt could actually increase in the next decades because of rising temperatures in some parts of the Earth. When subjected to extreme temperatures, asphalt releases harmful greenhouse gases (GHG) into the atmosphere.

Emissions from Road Construction (Source) CO2 equivalent (%)
Asphalt 28%
Concrete18%
Excavators and Haulers16%
Trucks13%
Crushing Plant 10%
Galvanized Steel 6%
Reinforced Steel6%
Plastic Piping 2%
Geotextile1%

Asphalt paved surfaces and roofs make up approximately 45% and 20% of surfaces in U.S. cities, respectively. Furthermore, 75% of single-family detached homes in Canada and the U.S. have asphalt shingles on their roofs.

Reducing the Environmental Impact of Asphalt

Similar to roads, asphalt shingles have oil as the primary component, which is especially harmful to the environment.

Shingles do not decompose or biodegrade. The U.S. alone generates ∼12 million tons of asphalt shingles tear-off waste and installation scrap every year and more than 90% of it is dumped into landfills, the equivalent of 20 million barrels of oil.

But most of it can be reused, rather than taking up valuable landfill space.

Using technology, the primary components in shingles can be repurposed into liquid asphalt, aggregate, and fiber, for use in road construction, embankments, and new shingles.

Providing the construction industry with clean, sustainable processing solutions is also a big business opportunity. Canada alone is a $1.3 billion market for recovering and reprocessing shingles.

Northstar Clean Technologies is the only public company that repurposes 99% of asphalt shingles components that otherwise go to landfills.

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