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Guggenheim Investments, the eighth largest provider of exchange-traded funds in the US, has announced the results of a study highlighting a number of investment headwinds currently facing today’s investor, including lack of current income, volatile equity returns and scarcity of stable diversification.
Guggenheim’s study reveals that the current low-yield environment and the uncertain future of the US economy have caused concern amongst investors about their ability to save enough for upcoming life events. A majority of investors (69 percent) are worried that they will not have enough income for retirement, while rising healthcare costs (51 percent), or purchasing a home (21 percent) were also life event concerns in today’s market.
“Investors are looking for unique and innovative ways to find potential income given the volatile market and ETFs fill a void in an investor’s toolkit for a range of applications—from replacing gaps created by maturities or called bonds to managing cash flow needs, and to customizing a portfolio’s duration profile,” said William Belden, Managing Director, Product Development at Guggenheim Investments.
Despite current concerns, investors surveyed are optimistic about the future of fixed income, in light of volatile equity returns. The majority of respondents choose to get their fixed income exposure through mutual funds (63 percent) and/or individual bonds (38 percent). While less than one quarter (21 percent) of investors are currently investing in ETFs.
Investors may also not be interested in pursuing asset allocation changes because they remain confident about the future of fixed income. The survey revealed that nearly three quarters of investors (72 percent) believe that fixed income will continue to offer stable and consistent income streams and protection for the principal value of their portfolio (49 percent). Respondents indicated high yield (29 percent), emerging markets (27 percent) and investment grade (25 percent), as offering the most opportunity for investors given the rising yield environment.
“For investors looking to save for life events such as retirement, defined-maturity products could be attractive, given the current volatile economic environment,” said Belden. “With increasing education initiatives around ETFs, more advisors are looking to them as a potential investment vehicle to help their clients reach their investment goals.”
Diversification continues to be the primary driver for investing in fixed income ETFs, as cited by 49 percent of surveyed investors. Tax efficiency (18 percent) and convenience (13 percent) are other important drivers. For investors hesitant to allocate their assets to fixed income, ETFs are one investment vehicle to consider given their ability to capture broad, diversified exposure to this segment.
Belden added: “Not all fixed income products are created equal, and fixed income ETFs can offer investors a viable way to capture exposure to diversified, transparent and tax efficient investment vehicles. With the ETF industry experiencing strong growth over the last several years, it will likely garner broader acceptance from the investment community.”
(The survey was conducted online by Amplitude Research for Guggenheim Investments during the week of September 9, 2013. A total of 1,000 investors with investable assets of $100,000 or more were surveyed.)