Advisors and institutional investors embrace fixed-income strategies
A new report from Cerulli Associates provides in-depth analysis of marketing, product development and strategy, pricing, sales, distribution, market segmentation, and regulatory trends in the U.S. financial services industry. Access the full report here.
July 20, 2023, BOSTON—Fixed-income exchange-traded funds (ETFs) are gaining ground, due to incrementally higher yields and greater investor comfort levels. 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 latest Cerulli Edge—U.S. Asset and Wealth Management Edition.
Issuers attribute expected future fixed-income ETF asset growth to greater uptake by advisors and institutional investors—66% cite greater advisor familiarity as a top-three asset growth driver in the next 24 months, and 55% say the same for greater institutional use. Meanwhile, 38% point to both higher yields and advisors’ 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% of managers citing fixed income as a primary product development focus and 57% citing U.S. 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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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.
