A big product development opportunity exists for firms looking to launch active fixed-income exchange-traded funds, Cerulli Associates said in a news release Tuesday regarding a report it issued to clients last month.
Daniil Shapiro, a director in product development at Cerulli, said in an interview Tuesday that "a mix of factors" have combined to create the opportunity.
"You have investors that are showing increased preference for the ETF structure and they're increasingly open to accessing fixed income through the ETF structure," Mr. Shapiro said. "At the same time, you have interest rates which are increasing, which makes fixed income more attractive to investors."
The report, which Mr. Shapiro said was based on polling Cerulli conducted in the third and fourth quarters of last year, revealed that among advisers using ETFs, the portion using U.S. fixed-income ETFs has continued to increase, with 70% reporting such use in 2022, up from 63% in 2021.
When ETF issuers were asked to gauge key drivers of fixed-income ETF flows over the next 24 months, greater adviser familiarity with fixed-income ETFs topped the list, cited by 66% of respondents, according to a summary of The Cerulli Report — U.S. Exchange-Traded Fund Markets 2022. Increased use of fixed-income ETFs by institutions ranked as the second-biggest expected driver, cited by 55% of respondents.
Sixty-six percent of ETF issuers viewed fixed income as a primary focus for ETF product development, which bested even U.S. equity at 57%, according to Cerulli's research.
"It really speaks to the white space available for fixed-income exposures," Mr. Shapiro said.
The passive equity ETF product market is "largely saturated," and while active equity ETFs are continuing to come online, they have to compete with passive equity ETF strategies, which typically have lower costs, he said.
Meanwhile, in the fixed-income area, "you probably have greater white space opportunity just because of the lower product counts," Mr. Shapiro said.
