As investors prepare for interest rates to rise in the wake of the tapering of the Federal Reserve's bond buying, Greenwich Associates surveyed 110 institutional investors on their use of fixed-income exchange-traded funds (ETFs).

The Investment Company Institute estimated the value of assets in U.S.-based bond ETFs to be $246 billion as of December. Among the majority of respondents (54 percent) to the Greenwich Associates survey who currently use these vehicles, most do so because they're easy to use (cited by 81 percent) and provide quick access to funds (78 percent). The majority currently have less than 30 percent of their fixed-income portfolios in ETFs—for two in five of those who use them, ETFs account for less than 10 percent of the fixed-income portfolio.

When asked how their portfolios have changed over the past two years, only a quarter of respondents said they have either increased or decreased their fixed-income holdings by more than 10 percent. However, 65 percent have made significant changes to allocations within their fixed-income portfolios. Many have been moving funds out of U.S. Treasuries and into corporate bonds, international or emerging-market bonds, and high-yield or short-duration assets. They expect these trends to continue. (See Figure 1, below.)