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Wider opportunities seen for fixed income ETFs: Cerulli Associates

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Fixed-income ETFs are gaining ground, due to incrementally higher yields and greater investor comfort levels, writes Cerullia Associates. 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 firm.

Issuers attribute expected future fixed-income ETF asset growth to greater uptake by advisers and institutional investors—66 per cent cite greater adviser familiarity as a top-three asset growth driver in the next 24 months, and 55 per cent say the same for greater institutional use. Meanwhile, 38 per cent point to both higher yields and advisers’ 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 per cent of managers citing fixed income as a primary product development focus and 57 per cent citing US 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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