Published by Asia Asset Management – 24th Dec 2018
US passive manager Van Eck Associates Corporation (Van Eck) says the global fixed income exchange-traded fund (ETF) market has more than doubled over the past five years because more institutional investors are using the funds for asset allocation.
According to figures provided by Van Eck, total assets in the global bond ETF market now exceeds US$700 billion from about $290 billion five years ago.
Francis G. Rodilosso, the company’s head of fixed income ETF portfolio management, says growth has been faster than in the larger equity ETF market because of greater interest from large investors. The quicker expansion is also because it’s coming off a low base.
“It takes a while for some institutional investors to buy in the concept of fixed income ETF” but “the market environment (for bond ETFs) is becoming better for institutional investors as they can trade in bigger size at tighter spread,” Mr. Rodilosso tells Asia Asset Management (AAM).
He says many institutional investors have become better educated at using the funds to tactically adjust their fixed income beta exposure, and to utilise them as a substitute for regular bonds.
“Some large users of our bond ETFs are taking a very intelligent approach,” he says.
Van Eck now has more than 20 fixed income ETFs with some $12 billion of assets, up from 14 ETFs with about $3 billion in assets five years ago.
“We’ve diversified our product mix from municipal bond ETFs to US credit and emerging-market ETFs,” Mr. Rodsillo says, adding that there is still plenty of room for diversification, especially in the emerging-markets space.
Van Eck is looking to provide more fixed income ETF solutions to Asian investors.
According to Richard Siaw, the company’s vice president for Asia, Asian institutional investors see bond ETFs as an attractive way to gain market exposure, and an increasing number are using the funds for tactical asset allocation.
“We believe understanding local client needs and continuing product development is the key for Asia business expansion,” Mr. Siaw tells AAM.
Van Eck has $44 billion of total assets under management currently.
