Fixed Income ETFs: Just Another Fad, or Here to Stay?

A new report from Aite Group examines the exchange traded fund (ETF) industry, specifically fixed income ETFs and their position within the broader ETF landscape. The report outlines fixed income ETF mechanics and management structure, and presents considerations unique to the product.

Within the past few years, the fixed income ETF has evolved into a viable investment instrument. These ETFs were a scarce breed on the fund landscape as recently as the mid-2000s, but have multiplied by about twenty-fold since then, with assets under management increasing by a factor of three since 2007. While the outlook is positive for fixed income ETFs, which meet many goals of the investment community – including offering diversification across asset classes and serving broad investment strategies – obstacles exist. These include the need for relatively large amounts of capital to launch new fixed income ETFs and potential difficulty in developing fixed income strategies.

“Despite certain significant issues, the current low interest rate environment and need for income-producing investment strategies indicates that fixed income ETFs are here to stay,” said John Jay, senior analyst with Aite Group and co-author of this report. “Growth in fixed income ETFs is only just beginning. As they develop further, mutual fund firms will have to scramble just to maintain the status quo.”


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