Rising popularity of European bond ETFs as providers adapt

European bond exchange-traded funds (ETFs) are gaining popularity as investors flock back to long-duration allocations, according to a new report by Cerulli Associates. 

The ‘Cerulli Edge—Global Edition‘ report noted that fixed-income ETFs globally experienced strong inflows in the first four months of 2023, surpassing the previous year’s total. While concerns about liquidity persist, European bond ETFs are seeing increased innovation. 

Institutional investors are seeking exposure to specific market segments and anticipating opportunities as inflation cools, the report claimed, and retail investors are expected to drive long-term growth in the ETF market. 

Transparency demands, especially in ESG products, and lower-cost fee structures are also driving institutional interest. 

In the retail market, broad-based bond ETFs are appealing in the uncertain outlook, with a shift towards government allocations after the collapse of Silicon Valley Bank. 

New launches in the European market include specialised sovereign bond ETFs in response to increased demand, especially in sustainability. While liquidity concerns impacted 2022, global green and sustainability-linked bond issuance is expected to grow. 

Fabrizio Zumbo, director, European asset and wealth management at Cerulli Associates, said, “The trend toward active bond ETFs is likely to continue, but the downside remains unchanged: although active bond ETFs are cheaper than actively managed mutual funds, the expenses are higher than on pure passive bond ETFs.”

© 2023 funds europe

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