Fixed-income ETF industry has leeway to grow, but inflation and rising rates could pose challenges, survey says
Seventy percent of individuals polled in this year's Trackinsight global exchange-traded fund survey indicated they had fixed-income ETFs, but more than half stated those ETFs make up less than 20% of their portfolios.
"This should leave the industry room to develop those products further, but some externalities such as the rising rates environment make the task difficult for fixed-income ETF providers," wrote the authors of Trackinsight’s Global ETF Survey 2022.
In the third edition of Trackinsight's study, more than 340 professional investors from 20 countries responded, representing US$415 billion in ETF exposure.
In the January survey, asset managers, family offices, and financial counselors remained the most-represented categories among respondents.
Pension funds accounted for 6% of 2022 survey respondents, while endowments and foundations accounted for 4%, defined contribution plans accounted for 3%, and insurance firms accounted for 1%.
"Our respondent base is very familiar with ETF investing as more than half of them have over 60% invested in ETFs," the survey said.
In 2022, little more than a third of investors polled want to increase the proportion of ETFs in their portfolios. In 2020, approximately 60% of respondents expected exposure to grow.
Professional investors' portfolios have already experienced a "seismic shift" toward ETF adoption, according to the poll.
"In 2021 and 2022, more than half of our respondents aren't considering increasing the share of ETFs in their portfolios," the survey said. "Moreover, the proportion of investors who are thinking about decreasing their allocation to ETFs has been rising year after year, to reach a little under 10% in our most recent survey."
The study found that fixed-income ETFs "registered the most intentions of reducing exposure" with 13% of respondents. This could reflect the current raging inflation environment's negative influence on fixed-income assets, the authors suggested.
"As rates rise, traditional passive fixed-income ETFs become less attractive for investors, but the rise of actively managed fixed-income ETFs might help curb this trend," they said.
On June 15, the Federal Reserve increased its benchmark interest rate by 75 basis points, the highest increase since 1994.
Actively managed ETFs are expected to be the next ETF industry growth engine, "appearing to be gaining traction with investors."
Thirty-seven per cent of respondents planned to increase the share of actively managed ETFs in their portfolios by at least 5% in 2022, up from 25% in 2020.