Wider Opportunities Seen for Fixed-Income ETFs

July 20, 2023 — Boston

Advisors and institutional investors embrace fixed-income strategies

Fixed-income exchange-traded funds (ETFs) are gaining ground, due to incrementally higher yields and greater investor comfort levels. A strong product development opportunity exists for managers offering active fixed-income exposures, given the white space for fee-competitive, attractively priced products, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.

Issuers attribute expected future fixed-income ETF asset growth to greater uptake by advisors and institutional investors—66% cite greater advisor familiarity as a top-three asset growth driver in the next 24 months, and 55% say the same for greater institutional use. Meanwhile, 38% point to both higher yields and advisors’ need to access lower-cost, fixed-income exposures.

Fixed-income product development among issuers is now taking priority over even the more sizable U.S. equity asset class, with 66% of managers citing fixed income as a primary product development focus and 57% citing U.S. equity.

Cerulli expects fixed-income ETF product development to follow two avenues, with some products becoming more targeted and offering access to niche allocations. At the same time, other new fixed-income ETFs will reflect mutual funds via more diversified exposures meant to offer a tax- and price-efficient way to access fixed-income exposures for the long run.

Combined with greater product development focus amid existing white space in fixed income versus the far more product-saturated equity space, a strong and attractive asset-gathering opportunity exists for fixed-income ETFs. “Issuer openness to offering transparent active fixed-income strategies creates room for the revenue generation associated with active exposures—even if managers will still have to lower prices in the fee-competitive ETF industry,” says Daniil Shapiro, director. “This optimism is underscored by the perception of a virtuous cycle by which a greater variety of quality and appropriately priced exposures help make fixed-income ETFs a go-to for a broader set of investors,” he concludes.

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Note to editors

These findings and more are from The Cerulli Edge—U.S. Asset and Wealth Management Edition, July 2023 Issue.

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