Cerulli: Asset managers turn to ETFs for fixed income exposure

May 31st, 2016 | By | Category: Fixed Income

An increasing number of asset managers are using exchange-traded funds to access passive fixed income exposure, according to research from global analytics firm Cerulli Associates. Cerulli found that the broad ETF industry experienced another month of positive net inflows with more asset managers using ETFs as vehicles for fixed income exposure.

ETFs increasingly used for passive fixed income exposure, finds Cerulli Associates

According Cerulli, ETF asset flows were positive, at $8.9bn, in April with significant demand noted for taxable bond ETFs which garnered flows of $3.1bn.

According to the report, US ETF assets grew for a third straight month in April, increasing 1.7% to finish just greater than $2.2tn. Flows into the funds were positive, at $8.9bn with significant demand noted for taxable bond ETFs (those whose interest payments are taxed by local, state or federal authorities – examples include corporate bonds and Treasuries), which garnered flows of $3.1bn. In contrast, mutual fund flows were negative with $3.7bn of net outflows in April. Interestingly, passive mutual funds maintained strong interest, attracting $16.6bn in net inflows, highlighting the continued shift in favour of passive over active management. Outflows of $20.3bn for active mutual funds was recorded.

Active bond managers, once thought to be immune to the shift of assets from active to passive that their fellow equity managers have been facing, now feel similar pains as more investors are reallocating to index-tracking fixed-income funds such as ETFs. According to Cerulli data, 60% of advisors currently use taxable fixed-income ETFs, and another 16% plan to use these funds over the next 12 months.

ETFs are becoming an increasingly popular means of accessing fixed income exposure due to low costs, diversification benefits and the ability to trade in an active secondary market without significantly affecting security pricing.

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