Passive bond funds attract large inflows
Bond exchange traded products have more than doubled their market share as investors increasingly choose passive funds and avoid equities in their portfolios.
The BlackRock ETP Landscape Special Report reveals that global fixed income ETP assets have grown to $309 billion (£192.8 billion), and now make up 18 per cent of global ETP assets, up from 7 per cent in 2007. In July this year 35 per cent of all investors’ money into ETPs flowed into bond products.
Dodd Kittsley, global head of ETP research for BlackRock, says: ‘We believe investor appetite for bond ETPs will continue over the coming decade, spurred by the income needs of aging populations. As fixed income ETPs account for a small part of the global bond market, we expect more products, more innovation and more fixed income ETP assets for many years to come.’
Jason Witcombe, director at Evolve Financial Planning, comments on the report: ‘I think that in the boom years for equities fixed income is often overlooked, but we’ve been going through a tough time for the last decade or so and there has been more appetite for fixed income holdings as a seemingly safe place to put investments. There has also been a move toward passive investment, and ETPs have become more and more popular with investors as a way of getting fixed income exposure.’
However, Witcombe warns that the usual caveats apply for investors deciding on how to gain passive exposure. ‘When comparing the difference between ETP and tracker fund costs, it’s easy to look at a total expense ratio on an ETP, and see that it is lower, but you have to take into account dealing costs, like stockbroker charges. For this reason ETPs [are more appropriate for] lump sum investments rather than regular savings.’