Fixed-income ETFs are gaining ground thanks to their incrementally higher yields and greater investor comfort levels, with active fixed-income the "next frontier" for ETF product developers, a Cerulli Associates report said.
Issuers, surveyed by Cerulli in late 2022, attribute expected future growth of fixed-income ETF assets to greater uptake by both financial advisers and institutional investors, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition, which was issued July 12.
Sixty-six percent of ETF issuers cited greater adviser familiarity as a top-three asset growth driver for fixed-income ETFs over the next 24 months, while 55% say the same for greater institutional use, the report said.
"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 products within categories that have few competitors," Cerulli's report said.
Managers seeking to offer active fixed-income ETFs should look to categories that aren't product-saturated and offer room for fee competition relative to incumbents, the report said.
"Examples of differentiation include offering an environmental, social, and governance (ESG) overlay or themed exposures, and using the firm's expertise to deliver content/thought leadership," Cerulli's report said.
ESG is a "key way that managers can differentiate a product," said Daniil Shapiro, director, product development at Cerulli, in an interview Thursday, adding that many institutional investors have an ESG mandate or focus.
"So, it's possible that the product becomes a fit for them," he said.