Demand for Fixed-Income ETFs Heats Up as Investors Seek Access to Reliable Income
October 5, 2021 — Boston
This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes mutual fund and exchange-traded fund (ETF) product trends as of August 2021, explores how marketplaces are selling annuities to fee-only advisors, and why fixed-income ETFs are poised to become a more common source of retirement income.
Highlights from this research:
- Mutual fund assets grew 1.9% during August and pushed closer to the $21 trillion asset threshold, while ETF assets gained nearly 3.0% to end the month above $6.8 trillion. Net flows were positive for both vehicles, with ETFs adding $50 billion and mutual funds collecting $27 billion.
- Despite significant work in the last decade by variable annuity (VA) carriers to offer no-commission I-share annuities, an overwhelming majority (84%) of independent registered investment advisors sold no annuities in the last 12 months. Fee-only financial advisors have expressed interest in outsourced third-party annuity marketplaces, where they can access VA products from top carriers without the operational and compliance burden of getting an insurance license. While marketplaces are an important access point for carriers to work with fee-only advisors, carriers must do additional work to educate advisors around fees and how their products fit in with a broader retirement income portfolio.
- Cerulli believes sector- and thematic-specific ETFs may become a key portfolio addition as the number of ETFs on the market increased 4.7% in 2020. New solutions are coming to market to meet perceived demand, largely backed up by increased fixed-income ETF flows. Nearly three-quarters (71%) of U.S. ETF issuers believe that increased use of fixed-income ETFs will be a major driver of ETF asset growth with another 26% indicating it will be somewhat of a driver. The emergence of niche ETF strategies will allow income-seeking investors a variety of new ways to access reliable income.
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