Bond exchange traded funds have become a popular liquid alternative to the notoriously illiquid fixed-income markets.

Bond ETFs only make up a tiny 0.4% portion of global fixed-income assets. About $329.1 billion is held in bond ETFs, or 16.3% of the overall U.S. ETF industry, according to XTF data. [Areas That Fixed-Income ETF Investors Should Keep An Eye On]

However, investment interest is steadily growing as more investors enjoy the liquidity and flexibility of bond ETFs in a diversified portfolio, reports Chris Flood for the Financial Times.

According to ETFGI data, investors funneled a record $81.9 billion into bond ETFs over 2014. Over the first seven months of the year, investors threw $44.3 billion into bond ETFs, up 12.4% over the same period year-over-year.

“Demand for bond ETFs has increased dramatically and there is clear potential for further growth,” Thomas Merz, head of ETFs in Europe for UBS, told the Financial Times.

Merz sees increased interest among portfolio managers and family offices that have historically employed active bond managers as more investors understand the benefits of passive investment strategies.

Additionally, there is growing interest among large, institutional investors who see ETFs as an easy and liquid way to track broad market segments.

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