Professional investors are expected to increase their allocations to fixed income ETFs over the next three years, according to research commissioned by new European ETF issuer Tabula Investment Management.
Fixed income ETFs to play greater role in portfolios, finds Tabula
In a survey of 67 professional investors, ranging from wealth managers to pension funds, a third (32%) of respondents noted their intention to increase allocations to fixed income assets by 2022.
And within those fixed income allocations, the proportion invested in ETFs is expected to rise from 7% to 12% over the same period.
The survey also found that the number of investors with more than 10% of their fixed income exposure in ETFs is expected to increase from 16% today to 33%. Or, put another way, a third of professional investors will have at least 10% of their fixed income allocations invested in ETFs by 2022.
The research also uncovered an appetite for new product development within fixed income ETFs with more than half (51%) of investors keen to see the sort of smart beta innovation exhibited in equity markets replicated in the fixed income space.
The desire for new product choices is likely a function of the challenging fixed income environment, with 47% of respondents saying that bond markets have actually become harder to navigate in the last three years. In particular, almost two-thirds (63%) of respondents expressed difficulty in finding euro-denominated fixed income investments with satisfactory levels of yield.
Commenting on the findings, Michael John Lytle, CEO of Tabula Investment Management, said, “As investor appetite for fixed income grows, so does the demand for innovation in fixed income ETFs as a means of broadening access to the asset class at a low cost.
“At Tabula, we want to help drive this process. At a time when negative Euro yields are driving many investors to increase their high yield allocations in their search for yield, we offer solutions that allow investors to access yield scaled up a mainly investment-grade portfolio, in order to generate returns comparable to high yield. Meanwhile, our ETFs have minimal interest rate exposure, helping to address concerns about rising rates.”
Tabula’s funds
Tabula’s roster of products includes investment-grade performance funds, tools for both long and short high yield, as well as a credit volatility premia ETF that recently surpassed €150 million in assets under management.
The Tabula European Performance Credit UCITS ETF provides long exposure to European credit through direct access to the corporate credit default swap (CDS) market. It tracks the iTraxx European Performance Credit Index which represents selling protection on both investment-grade and high-yield issues. The fund’s ongoing charge is 0.50%.
The Tabula European iTraxx Crossover Credit UCITS ETF targets long exposure to European high yield credit via selling protection on the iTraxx Crossover 5y Index. Its ongoing charge is 0.40%.
The Tabula European iTraxx Crossover Credit Short UCITS ETF offers short exposure to European high yield credit via buying protection on the iTraxx Crossover 5y Index. Its ongoing charge is 0.50%.
The Tabula JP Morgan Global Credit Volatility Premium Index UCITS ETF provides a passive vehicle for capturing the difference between realized and implied volatility in CDS index options markets. The fund tracks the JP Morgan Global Credit Volatility Premium Index, and its ongoing charge is 0.50%.