The bond ETF market has been heating up this year, with record inflows fueled by crazy happenings in the financial markets and by the increasingly sophisticated ways investors are using these ETFs, said people who follow this space.

Historically low interest rates have negatively impacted the fixed-income world at large, and that means the standard 60/40 stock-bond portfolio won’t cut it for a lot of retirees. Nonetheless, bond ETFs are playing a vital role in many portfolios thanks to the increasing variety of these investment vehicles and the versatility they can add.

“There has been a proliferation of [fixed-income ETF] products that give investors more choice,” said Matthew Bartolini, head of SPDR Americas Research at State Street Global Advisors.

There are more than 400 U.S.-listed bond ETFs, and they run the gamut from tracking large indexes like the Bloomberg Barclays U.S. Aggregate Bond Index (known as the Agg) to targeting specific niches. One of the latter examples is the recently launched iShares BB Rated Corporate Bond ETF (HYBB), which focuses on the BB-rated segment of the high-yield market.

From his perch at State Street, Bartolini sees institutional investors, financial advisors and others using bond ETFs to manage portfolios both strategically and tactically.

Investors can use ETFs strategically, he said, to create a version of the broad Agg index that’s tailored to their risk and return assumptions. That can be done by decomposing the index into its different maturity bands and credit sectors.

“You can create different profiles for yourself while potentially benefiting from the diversification that core bonds can give you in terms of being negatively correlated to equities,” Bartolini said.

Elsewhere, some financial advisors employ target maturity date bond ETFs to replicate bond laddering strategies; these approaches use bond portfolios of different maturity dates that provide predictable income while reducing reinvestment risk from fluctuating interest rates. Using ETFs to build a laddering approach is much simpler and cheaper than buying individual bonds.

On the tactical side, investors can use bond ETFs in ways that go beyond long-only exposures. That can include shorting bond ETFs, as well as using options tied to fixed-income ETFs as a way to take levered positions.

Joshua Penzner, U.S. head of institutional fixed income at BlackRock’s iShares ETF division, said bond ETF usage has reached a turning point thanks to the growing adoption of these products as portfolio management tools by large institutions, insurance companies, pension funds and asset managers.

Like Bartolini, he noted that institutional investors are using bond ETFs for both strategic and tactical allocations, and to get more liquidity from their portfolios than they would holding individual bonds.

“It continues to validate the power of bond ETFs as portfolio construction tools,” Penzner said. “And whether you’re an institution or individual investor, you’re building portfolios to get to a certain end goal.”

He added that the institutional embrace of bond ETFs increases the liquidity of these funds and lowers their trading costs.

“As more folks are buying and selling a product, you’re improving the ecosystem for everyone,” Penzner said.