BlackRock's Fisher said the move to bond indexing reflects a shift in the way investors, both retail and institutional, are allocating money. Investors understand that asset-allocation, the process of dividing money between stocks and bonds or between sectors such as high-yield and government bonds, accounts for anywhere from 60 percent to 80 percent of their returns, he said. With ETFs, investors are able to build their own portfolios, according to Fisher.
As bond-market returns are falling, investors are also paying a lot of attention to fees, Morningstar's Strauts said in an interview. The average fee charged by a fixed-income ETF is 0.31 percent, compared with the 0.4 percent average fee for index mutual funds and the 1.05 percent fee for active bond funds, he said.
"In an environment when yields are so low, the fees can result in a sizable difference for investors," Strauts said.