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Fixed income frustrates as investors seek ETF innovation

ETF_promotingMany investors are seeking new sources of returns and this will boost smart beta and wider innovation among exchange-traded funds (ETFs) that invest in bonds, a provider claimed.

Tabula Investment Management, which Michael John Lytle launched in 2018 to disrupt the market in bond ETFs, found that 85% of 67 wealth mangers and institutional investors it surveyed wanted to find new sources of return that were structural and uncorrelated.

Tabula said this explained why just over half of the respondents expected to see smart beta used in fixed income ETFs more in the next three years.

Also, 54% of the respondents expected to see environmental, social and governance (ESG) allocations increasing.

One asset manager recently said ESG criteria applied to convertible bonds could protect against defaults, while innovation in the sector of ESG fixed income ETFs was seen with Franklin Templeton’s recently announced actively managed green bond ETF.

Tabula itself claimed to be the first ETF manager to launch an ETF tracking a credit risk premia index. 

A small percentage of respondents to the survey felt smart beta and ESG usage would fall.

One in five respondents anticipated that the average ticket size in ETF trades would rise, as well as the number of investors using them.

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