ETFs gain ground following higher yields, Cerulli states

Written by Dan McGrath

21/07/2023

Fixed income exchange-traded funds (ETFs) are gaining ground due to incrementally higher yields and greater investor comfort levels, Cerulli has stated.

In a new report, Cerulli Edge - US Asset and Wealth Management Edition, Cerulli stated that a strong product development opportunity now exists for managers offering active fixed-income exposures, given the white space for fee-competitive priced products.

Issuers have tagged this development in expected future fixed-income ETF asset growth to greater uptake by advisers and top investors.

Results showed that 66% of issuers cite greater adviser familiarity as a top-three asset growth driver in the next two years, with 55% saying the same for greater institutional use.

Meanwhile, 38% pointed to both higher yields and advisers’ need to access lower-cost, fixed income exposures.

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

Cerulli stated that it expects 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 exposure in future.

Director of product development at Cerulli, Daniil Shapiro, said: “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.

“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.”

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