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Fixed income ETFs have witnessed unprecedented growth in
recent years, spearheading the rise of the overall ETF market.
Hayley McDowell asks why the product is so attractive to investors
and what the future holds for the asset class.
T
he growth of the ex-
change-traded fund (ETF)
industry has been an epi-
sodic experience, with new batches
of products coming into the mar-
ketplace every three-to-fouryears.
In the wake of the financial crisis
of 2008, fixed income ETFs began
to emerge from the shadows but in
recent years the product’s growth
has accelerated significantly.
According to data from Bloomberg
Terminal, the fixed income ETF
sector has been at the vanguard
of the overall market’s progress
during the past year, with a 17.5%
annual growth rate. In comparison,
the US Equity ETF growth rate
stood at 7.9%.
ETFs are attractive investment
vehicles to many investors due
to the diversity the product can
offer, but it has taken some time
for institutional investors to come
around to the idea of them. Certain
regulators, market commentators
and industry participants have spent a considerable
amount of time trying to understand how ETFs func-
tion, with financial institutions putting in similar ef-
forts to educate the market on how the products work.
This process has led to rumours of a potential bubble
emerging, but as some of the world’s largest financial
institutions embrace ETFs, the market has certainly
shifted in their favour.
“While the fear of a potential ETF meltdown is still a
topic for discussion, more and more professionals are
beginning to understand the ETF infrastructure and
the interaction of the secondary market, the primary
market and the creation/redemption process, and
how the market should be able to sustain pressures,”
says David Mullen, senior business manager for fixed
income ETF products and ETF trading platform at
Bloomberg.
Fixed income ETFs may still be in their infancy but
remain a rapidly growing segment of the industry.
Global bond markets have undergone substantial
change through the rise of electronic trading, con-
sistently fragmented liquidity and a surge in passive
investing. In this new landscape, senior market par-
ticipants agree this has worked out positively for fixed
income ETFs, as they play a significant role in next
generation bond markets.
“While the fear of a potential ETF meltdown
is still a topic for discussion, more and
more professionals are beginning to
understand the ETF infrastructure.”
- DAVID MULLEN, SENIOR BUSINESS MANAGER FOR FIXED INCOME
ETF PRODUCTS AND ETF TRADING PLATFORM, BLOOMBERG
64 // TheTrade // Spring 2018