Actively managed exchange traded fund (ETF) provider Grail Advisors has emerged with an extensive whitepaper on the past, present and future of fixed-income investing and how ETFs have helped alter the space for all types of investors.

Grail‘s paper credits fixed-income ETFs with shattering the barriers that many investors faced when trying to enter the bond market. Although they haven’t gotten as much attention as equity ETFs, growth in fixed-income ETFs surged 59% in the third quarter of 2009 from one year earlier.

Because the fixed-income space has become so successful, Grail sees only continued expansion in its future. Other interesting points in the paper include:

  • Active management is an exciting development and gives investors an appealing alternative to actively managed bond mutual funds or indexed bond mutual funds (including ETFs). They give diversification and tax efficiency with one trade and offer transparency that didn’t exist before. [5 ETFs That Hedge Inflation.]
  • Municipal bonds are heating up. In the first three quarters of 2009, municipal bond ETFs saw the biggest percentage of inflows and they’re one of the fastest-growing segments in the entire industry. More than 20 muni bond funds have launched in the last two years alone.
  • The current economy has many struggling municipalities issuing muni bonds, and high credit ratings are hard to come by. This is why active management especially suits the muni space – a manager than analyze a municipality on an individual basis and be more discerning.
  • Existing and new providers have been busily expanding their fixed-income lines. PIMCO is the largest bond-fund manager and offers several passive and active fixed-income ETFs; iShares is the largest bond ETF provider with 25 funds; State Street is the second-largest, with 18 funds. [Muni Bond ETFs with an End Date? Believe It.]

For more stories about bond ETFs, visit our Bond ETF category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.