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Asset growth drivers and opportunity align for fixed-income ETFs says Cerulli Associates  


Cerulli Associates has published its latest evaluation of the US ETF industry, noting that the portion of advisers who use US fixed-income ETFs continues to grow, with 70 per cent reporting use in 2022 vs. 63 per cent in 2021. 

Myriad reasons are leading to fixed-income ETF uptake, and managers should pay close attention to a category that has the potential for long-term sustainable growth, according to the firm. 

The top-three drivers of fixed-income ETF flows include greater advisor (66 per cent) and institutional (55 per cent) familiarity, followed by the prospect of higher yields (38 per cent). 

“As advisers increase ETF uptake, they are using the vehicle for more exposures, including fixed income. Institutional investors are also increasing use of fixed-income ETFs,” says Daniil Shapiro, director. 

According to the research, 66 per cent of ETF issuers consider fixed income a primary focus for ETF product development, overtaking even US equity (57 per cent). Cerulli believes a strong product development opportunity exists for those firms offering active fixed-income exposures given the existing white space to offer fee-competitive, attractively priced product within categories that have few competitors. 

“There is opportunity for managers to launch products into categories that have fewer competitor products and ones where they can offer their expertise while serving as a cost leader,” says Shapiro. “Fee dynamics in active fixed-income ETFs will intensify as they have in the rest of the ETF ecosystem. Managers offering excellent performance and managing strategies meant to generate greater returns will likely be able to charge a premium relative to ultra-low-cost short-term exposures.” 

Managers can also stand out in seemingly product-saturated categories by offering unique exposures. Cerulli expects fixed-income thematic and sustainable products to play a greater role especially as a wider base of investors takes to the 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,” adds Shapiro. “In doing so, managers may be able to broaden their reach to a retail investor base,” he concludes.  

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