(Bloomberg) -- A thousand miles away from snow storms in New York City, investors and traders huddled at an exchange-traded fund conference in Florida only to spend all day worrying about a bigger problem: How to make sense of markets that are getting more and more volatile.
The 1,940 attendees’ main concern is the bond market, where the ballooning ETF industry has shaken up the traditional way to buy and sell debt.
Investors are increasingly turning to ETFs, with shares that trade like stocks in real time, to gain access to less-traded assets, such as high-yield bonds and emerging-market debt. They’re even turning to free “robo advisers,” or computer programs, to determine how to allocate their money across a range of ETFs.
What they’re doing less of is relying on human fund managers who’ve failed to outperform broad indexes of debt in a market hijacked by the Federal Reserve and European Central Bank’s monetary policies.
After all, the people largely got it wrong last year. Wall Street analysts predicted higher interest rates, only to watch benchmark 10-year Treasury yields fall to 1.8% from 3% at the end of 2013 even as the Fed quit buying bonds.
Bonds are “pretty overwhelmingly the number one macro topic people wanted to hear about,” Dave Nadig, chief investment officer of ETF.com, said in an interview in Hollywood, Florida. “There’s a lack of understanding about what the hell happened last year.”
This year, most analysts are still expecting shorter-term borrowing costs to rise a little as the Fed plans to raise benchmark rates from near zero, where they’ve been since 2008.
But investors have been humbled by their past failures and are wondering what they’re missing.
“Last year was one of the best years ever for 30-year Treasuries,” Jeffrey Gundlach, who runs DoubleLine Capital, said at one of the panels. “Now, a lot of investors are afraid not to own Treasuries because they performed so well.”
The debt rose today, pushing bond yields toward the least on record amid concern that a slowing global economy may damage the outlook in the U.S.
Perhaps this is why the mood was muted among conference attendees who managed to avoid a blizzard that dumped more than a foot of snow on parts of New York and Boston.
Vanguard Group “has the most guarded outlook for markets since 2006,” Joe Davis, the investment firm’s chief economist, said on a panel. “It’s going to be challenging going forward.”
It expects less than 6% annual returns in the next five years for a generic basket of stocks and bonds. That compares with 7.3% in 2014 and an average 8.7% annual payout since 1926.
With such ho-hum gains and central bank-induced volatility that doesn’t appear to be ending anytime soon, investors may just keep turning to the ETFs and computer programs instead of those more-expensive humans.