Fixed income ETF product development is becoming more innovative, according to Morningstar, as assets quadruple since 2021.
In the firm’s Q2 ETF report, it said assets are growing strongly in this category and have quadrupled since 2021.
Passive fixed income ETFs are the dominant vehicle with $38 billion in assets under management while active ETF ones stand at $14.5 billion. As of Q2, there are 60 passive ones and 43 active ones focused on fixed income.
Active ones, in particular, have grown strongly when there were just 20 vehicles in 2024.
Breaking it down by category, Australian bonds were the preferred choice with 30 per cent of market share followed by diversified credit at 26.3 per cent. There was less interest in the global bond counterparts which stood at 14.8 per cent of total AUM.
Looking at flows, diversified credit saw $694 million in inflows closely followed by Australian bonds which took in $693 million. Emerging market debt bonds Australian cash vehicles were the only sectors to see outflows at $11.4 million and $72 million respectively.
“Diversified credit remained the largest recipient of fixed-income flows in the second quarter. Demand for Australian and global bonds was also strong with both categories attracting substantial inflows. Investors favoured unconstrained and inflation-linked strategies, reflecting a presence for diversified sources of income and duration exposure. In contrast, demand for cash and short=term defensive exposures weakened.”
Morningstar noted product development is also expanding beyond traditional bonds with the launch of ETFs focused on private debt.
In February, VanEck launched the VanEck Global Listed Private Credit (AUD Hedged) ETF, offering investors the opportunity to take advantage of the growing private credit space.
In August, Betashares launched the ASX-listed Diversified Credit Income ETF (DCRD) will uses a blend of credit income ETFs to provide exposure to senior floating-rate Australian bank bonds, subordinated bonds and interest-rate hedged Australian investment grade corporate bonds.
This was followed by State Street launching the State Street Blackstone Senior Loan (AUD Hedged) Active ETF (SBSL) and State Street Blackstone High Income (AUD Hedged) Active ETF (SBHI) listing on the ASX in August.
A similar monthly report from Betashares found the ETF seeing the most flows in July was the Vanguard Global Aggregate Bond Index (Hedged) ETF which took in $388 million. This was the only fixed income ETF to feature in the top 10 funds for the month.
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