Asset Management

Asset Growth Drivers And Opportunity Align For Fixed-Income ETFs

A strong product development opportunity exists for firms seeking to launch active fixed-income exposures

The Cerulli Associates U.S. Exchange-Traded Fund Markets 2022 report examines the U.S. exchange-traded product industry from the perspective of existing issuers and new entrants, as well as those using their products, including advisors, institutions, and households. The report also monitors ongoing industry trends such as fee compression, the shift toward a wider variety of products, including actively managed equity (transparent and semi-transparent) and fixed-income ETFs, and identify other product trends. Access the complete report here.

January 3, 2023, BOSTON—The portion of advisors who use U.S. fixed-income exchange-traded funds (ETFs) continues to grow, with 70% reporting use in 2022 vs. 63% 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 Cerulli Report—U.S. Exchange-Traded Fund Markets 2022.

The top-three drivers of fixed-income ETF flows include greater advisor (66%) and institutional (55%) familiarity, followed by the prospect of higher yields (38%). “As advisors 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% of ETF issuers consider fixed income a primary focus for ETF product development, overtaking even U.S. equity (57%). 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.

Opportunities For Managers Abound

“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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Headquartered in Boston with fully staffed offices in London and Singapore, Cerulli Associates is a global research and consulting firm that provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments.