ETFs Will Take Up a Larger Share of the Debt Market

While bond exchange traded fund assets are but a shadow of the total assets found in equity-related ETFs, more investors are growing comfortable with the various ETF investments and will continue to fuel growth in the fixed-income segment.

“CFRA thinks that growing comfort by advisors will help to spur additional inflows in the coming years,” Todd Rosenbluth, Director of ETF & Mutual Fund Research, CFRA, said in a research note.

More have increased their utilization of bond ETFs to build portfolios and continue to shift assets away from mutual funds and individual debt securities. Relative to equity ETFs, though, advisors favor the diversification and ease of use offered by these bond ETFs, viewing performance as a less urgent matter.

This is reflected in a recent Cerulli Associates survey of 378 advisors with at least $50 million in assets and take discretion over half of the assets.

We are also seeing increased interest in bond ETFs among the investment community. While bond ETFs made up just 18% of the ETF market as of the end of May 2017, fixed-income-related ETFs attracted 28% of inflows this year.

Half of Cerulli surveyed advisors planed to raise usage of bond ETFs in the next three years while only 12 expect to reduce usage. On the other hand, advisors aim to only add 23% and 18% to individual bonds and bond mutual funds, respectively, while 29% and 39% expect to decrease usage in these income-generating products all together.