Using Fixed Income ETFs to Create a ‘Plannable Income Stream’

0:00We want to focus on ETFs and the fund flows and why they're hot. We've seen so many inflows, the record numbers that have come in. What will 2026 bring? I mean, we're already into now, March 12th, Chris Humors with us, director of ETF and fund strategy, Northern Trust asset management. I'm so glad you're here, Chris. I mean, what have we been seeing? I know you're launching some suites in ETFs. So I want to hear a little bit about everything. But what is the fun flow like? What are the trends? Yeah, you know, we're seeing investors come into various types of ETFs. Equities have had their time in the day. You've seen flows and the equities that's tapered off a little bit recently. But you're seeing more flows and the fixed income, more flows into alternative types of strategies where clients are using different tools, such as distributing ladders as a great idea of a new innovation that people are looking at. Are they looking to fix income because they want to be diversified? Are they nervous? Yeah, I think one of the things you're seeing today is ways

1:00to hedge your portfolio. Equities have been on such a great run that looking to take risk off the table, whether that's using low volatility strategies on the equity side or things like fixed income tools or real assets in the portfolio really across the board and helps. So you've been launching some new products lately, right? Tell us about those. Sure. We launched 11 ETFs last year. We've seen good growth in those. Those have been focused on the fixed income side of our portfolio. Some municipal strategies and some tips or inflation protected treasuries. Those that are really cool are the are distributing ladders. And so those products really take the idea of a ladder where you're getting interest rate protection and turning it into a cash flow management tool. So clients are able to really take their portfolio and manage the their cash flows over 10, 20, even 30 years by investing in either inflation linked securities and tips or in tax exempt income securities like

2:02news. Yeah. I mean, people want the tax advantages like I mean, just talk a little more about yet, you know, how advantageous it is to do it this way. Yeah, absolutely. So when you're buying a ladder, you're holding bonds across every year, every wrong. And so when those mature, you're getting them back at power values. So you're mitigating your interest rate risk. And then on top of that, you have those cash flows because we're distributing the mature bonds every year. So you're getting a planable income stream. It's almost like you're building your own annuity or pension using securities from that standpoint. It's amazing how you have ETFs that, you know, mature in 2030, 2035, 45, 55, it feels far away. But this is the way you do it, right? When we think about the current volatility environment, you know, how we have this geopolitical sort of war underway, you know, where does that fit into your story and your conversations? Yeah, clients are concerned about their cash flows. They're concerned about liquidity.

3:03They're concerned about defaults and really the growth and where that's going to come from. The nice thing about many securities, you know, if you look at investment grade securities, taxable corporates, default rates are 2.2% historically for municipal's and the investment grade space. That's 0.09 of a percent. So much more secure from a default standpoint, getting that liquidity on an annual basis is really helpful and really also having that tax exempt income as well. So really you're hitting a sweet spot from both the income and the returning principle. So you get a really good cash flow management tool. So for a younger person versus an older person, what are some of your recommendations? Sure. You know, one of the things that we've seen from from younger people is they want that income, whether it's using option based of derivative strategies in the equities, any sort of tool that will give them cash flow is really king. And so from that standpoint, some of these might be of an attractive use,

4:04even if it's like 20 or 30 years, if you're thinking about it, if you could say you can immunize your costs by buying a tool like that, what it allows you to do is then take the rest of your assets and invest that in areas of really high growth wherever that may be for you. Why did you think that this was the right time? I mean, these are the first funds under Northern Trust ETF brand. Why was now the time for this? Yeah, you know, we've been in the ETF industry for over 15 years with our flex shares brand. And what we wanted to do is really have the Northern Trust brand where our funds have always been a portion of those portfolios. And really take those strategies and use our expertise both in munis and fix income and use that as a way to invest here. Well, as someone sings Happy Birthday here on the floor. I mean, sometimes, you know, I admire guests who can sort of make it through some of the excitement that happens on the floor here. Last but not least, I mean, do you feel optimistic about the market?

5:04Maybe in the longer term? Yeah, you know, I think over the long term, if you look at where the bond market is and how investors have reacted, you have not seen, you know, if you look at like the five year, five year forward for inflation break events have not really come out that far. I think over the long term, the market is pricing in some risk and taking some some of the risk off the table. But generally speaking, you know, we're still bullish on risk. We're still invested for the long term inequities. You know, and I think this is a good time to really balance your portfolio out. Also add real assets. I think one of the key things is when inflation is high, bond prices and stock prices are positive correlated. So you need other tools in your portfolio to diversify. And I think real assets like natural resources are a really good tool to have your portfolio. All right. Chris, humor, great to see you in Northern Trust asset management. Thank you so much. Great to have you here today and really talk about the excitement of ETFs and your opportunity there. Thank you, Chris.