Strong Growth for Fixed Income ETFs Predicted by Cerulli Research
A big product development opportunity exists for firms looking to launch active fixed-income exchange-traded funds (ETFs), Cerulli Associates noted regarding a report issued to clients last month.
The proportion of US-based investment advisors using fixed income ETFs is continuing to grow with 70% reporting use in 2022 compared with 63% in 2021, according to a summary of the research.
The firm notes that there are myriad reasons leading to the greater uptake of fixed income ETFs, advising fund managers to pay close attention to a category that has the potential for long-term sustainable growth.
The Cerulli US Exchange-Traded Fund Markets 2022 report highlights the top driver of increased flows into fixed income ETFs as greater familiarity with the structure by advisors and institutional investors, followed by the prospect of higher yields.
When ETF issuers were asked to gauge key drivers of fixed-income ETF flows over the next 24 months, greater advisor familiarity with fixed-income ETFs topped the list, cited by 66% of respondents. Increased use of fixed-income ETFs by institutions ranked as the second-biggest expected driver, cited by 55% of respondents.
According to the research, 66% of ETF issuers viewed fixed income as a primary focus for ETF product development, which topped even US equities at 57%.
Cerulli believes fund managers who will most capitalize on this opportunity include those offering fee-competitive products or exposures within relatively underexplored investment categories.
Cerulli expects thematic and sustainable products to play a greater role within the fixed income landscape as a wider base of investors takes to these exposures.
“While inflation and rising rate protection strategies are getting attention in the current environment, managers have an opportunity to create interesting exposures that target a broader range of themes, ideally in a diversified and responsible manner,” said Daniel Shapiro, Director at Cerulli Associates.
The opportunity for prospective ETF issuers is being facilitated by the availability of semi-transparent ETF structures which allow fund managers to shield their proprietary investment strategies from competitors, as well as the proliferation of ETF white-labeling services which assist managers in bringing their strategies to market.