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By Scott Burns | 09-22-2011 05:06 PM

Fixed-Income ETFs: Fact and Fiction

BlackRock's Matt Tucker discusses notions about fixed-income ETF premiums and discounts, tax efficiency, liquidity, and more.

Scott Burns: Fixed-income ETFs: fact and fiction.

I am Scott Burns coming to you live from Morningstar's ETF Invest 2011 Conference. Joining me today is Matt Tucker, Head of Fixed-Income Strategies with BlackRock/iShares. Matt, thanks for joining me.

Matt Tucker: Thanks for having me, Scott.

Burns: So, you're going to be on a panel in a little bit talking about ETF fixed-income myths debunked. I think there are a couple of myths out there; let's chat about them.

One, fixed-income ETFs don't work. What do you say to people like that? We see a lot of premiums and discounts. When you hear that, how do you respond to somebody when they say "well, I don't use fixed-income ETFs. They don't work."

Tucker: Well, I think the challenge a lot of investors have had for years is they can see their equity portfolio. They can see how stocks trade. They can watch the tickers on the tape and see that move throughout the day, but they couldn't really see their fixed-income investments. And most of the estimates you get for value for a fixed-income fund or investment are end-of-day at best, and so what ETFs have done, they have brought in this new tool, this transparency of price, you can actually go and watch a portfolio of individual bonds trading on an exchange throughout the day and actually getting prices on that. I think people look at that and they say, wow this thing is moving all over the place, what's happening?

Well, that's just price information being reflected in the market, just like you usually see on equities. People just aren't associating that with fixed-income. It's a new idea to actually see price transparency in fixed-income real-time.

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