Todd Rosenbluth

In the past couple of years, ETF-oriented advisors have turned their attention to free cash flow ETFs. Free cash flow is the cash available after a company has paid expenses, interest, taxes and long-term investments. With such cash, a company can pay dividends, repurchase shares, make acquisitions or retain it for the future. When measured relative to its enterprise value, free cash flow yield can be an indication of an attractive valuation on a high-quality stock.

Institutional adoption of ETFs continues, which should make all investors happy. In a new report from S&P Dow Jones Indices, the amount of money U.S. and Canadian “asset owners” held in ETFs increased 22% to $56 billion in 2023. The asset owner category consists of pensions, endowments, foundations, and sovereign wealth funds.

Advisors have long turned to active management to gain fixed income exposure. Thus far in 2024, this has persisted due in part to macroeconomic uncertainty. There remains consensus that the Fed will cut interest rates but when and how aggressively is not clear.

Fixed income ETFs gathered $51 billion of new money in the first quarter. This represented 26% of the industry’s net inflows. With the asset class comprising 18% of the assets, it is great to see fixed income punching above its ETF weight.

In the first quarter of 2024, fixed income investors turned to investment-grade corporate bond ETFs.

Concerns about inflation are top of mind again, with consumer prices and producer prices rising higher last week. This impacted the bond market as well as commodity prices.

The timing of the Fed’s potential next move was a hot topic during the VettaFi Fixed Income Symposium last week. Close to 600 live attendees, and many more via replay, heard from some of the smartest people in the fixed income ecosystem. We had 18 speakers across 16 asset management firms. VettaFi covered broad market topics like the outlook for interest rates as well as targeted ones like where to take on credit risk. The most common question asked of the panelists was, “How many rate cuts do you expect in 2024?”

The largest high yield bond ETFs have been out of favor for much of 2024. However, many advisors recently told VettaFi they think the style will perform best going forward.

Fixed income ETFs are a hot topic across North America. As we have written, TMX VettaFi hosted in mid-May a symposium for more than 600 people. We tapped into the expertise of some of the leading voices in the U.S. ETF market.

While S&P 500 index-based ETFs were down 4% in April, they remained positive for the year. We believe as more institutional and retail investors turn to ETFs, these products will further swell in size.