Corporate bonds: the hidden gem of the Active ETF world

  • 17 October 2023 (7 min read)

Key points:

  • Global ETF assets under management have shown impressive resilience despite ongoing economic uncertainty in the past few years
  • A notable portion of inflows is attributable to product innovation in less explored areas for ETFs including active management, fixed income, and sustainability1
  • Many different types of investors are increasingly seeing a fundamental role for active fixed income ETFs in exposing their portfolios to the potentially attractive yields on offer across corporate bond markets
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Although passive equity continues to dominate global ETF AUM, investors now familiar with the potential benefits of the ETF structure – such as greater transparency and liquidity – are increasingly demanding more options for using ETFs in different ways.

This is driving significant growth across other segments of the ETF market. In particular, fixed income ETF AUM almost doubled in size between 2018 and 2022, while actively managed ETFs are also widely expected to see a rapid increase in demand over the coming years, and ESG remains as much in focus for ETF investors as elsewhere.2

In our view, the expansion of the ETF product line into previously untapped areas does not replace more traditional uses of ETFs such as indexed equity, but rather compliments this by offering exposure to a broader opportunity set within a diversified and responsibly-focused portfolio.

For example, investment grade (‘IG’) corporate bonds are less well-known than equities in the ETF space. However, they can work just as well for investors as a cost efficient and diversifying tool. Today, IG credit is experiencing strong demand amid the current environment of far more attractive yield potential than has been on offer for some time, without having to reach too far out along the risk spectrum.

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