New research conducted by fixed income ETF provider Tabula amongst institutional investors and wealth managers suggests there will be a huge increase in the number of fixed income ETFs launched in Europe over the next three years.
There are currently around 400 fixed income ETFs listed in Europe, the firm says. However, the survey, reveals 64 per cent of those interviewed anticipate there will be 500 or more by 2020. Some 17 per cent believe the number will be between 750 and 1,000 and 9 per cent anticipate there will be over 1,000 fixed income ETFs listed in Europe by 2020.
Tabula claims that this could result in a large number of ‘copy-cat’ fixed income ETFs launched, all offering much the same investment propositions. The firm is calling for a greater focus on innovation in order to address the needs of fixed income investors.
In terms of ETF asset growth, Tabula’s research reveals just over half (53 per cent) of those interviewed expect the amount invested globally in fixed income ETFs to reach USD1.6 trillion by the end of 2020 – a rise of 167 per cent on 2016.
In terms of what the biggest drivers are behind this growth, 67 per cent of institutional investors and wealth managers say low cost, followed by 52 per cent who say it’s the ease of access they provide to markets. One in four (24 per cent) say it’s the transparency and intra-day access that they offer.
The findings also reveal that fixed income ETFs will take a bigger share of overall flows into the wider ETF market. Currently, around 23 per cent of assets invested in ETFs track fixed income exposure. Last year fixed income ETFs accounted for 26 per cent of overall flows into the sector. 43 per cent of those interviewed expect flows to be 30 per cent or more by 2020, and only 22 per cent think it will be below last year’s levels.
Michael John (‘MJ’) Lytle (pictured), Chief Executive, Tabula Investment Management says: “There is a strong belief among professional investors that demand for fixed income ETFs will increase dramatically over the next few years. This is likely to lead to a significant expansion in the number of products that are launched. I am concerned that a lack of innovation will mean that many of these products will offer very similar exposure to those that already exist. The palpable opportunity in this market lies in developing new products that deliver precise exposure and address the specific needs of fixed income investors. We are aiming to tackle these issues when we launch our first products.”