Cerulli reports rise in use of US fixed income ETFs

Written by Michael Griffiths

03/01/2023

The portion of advisers who use US fixed income exchange-traded funds (ETFs) is continuing to grow, a new report from Cerulli has indicated.

Cerulli’s analysis revealed that 70% of advisers reported use in 2022 compared to 63% in 2021.

According to the report, titled US Exchange-Traded Fund Markets 2022, a myriad of reasons are leading to fixed income ETF uptake, and Cerulli said that managers should pay close attention to a category that has the potential for long-term sustainable growth.

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

According to the research, 66% of ETF issuers consider fixed income a primary focus for ETF product development, overtaking US equity (57%).

Furthermore, Cerulli believes a strong product development opportunity exists for firms offering active fixed-income exposures given the existing white space to offer fee-competitive, attractively priced product within categories that have few competitors.

“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,” said Cerulli director, Daniil Shapiro.

“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.

“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.”

Shapiro added: “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.

“In doing so, managers may be able to broaden their reach to a retail investor base.”

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