PARTNER INSIGHT: Stephen Yeats, Managing Director, APAC & EMEA Fixed Income Beta Solutions, explores the rise of fixed income ETFs and why the group is applying a more targeted and hands-on approach to security selection in order to deliver investors' desired exposures.
The growth of the exchange traded funds (ETF) industry saw assets swell to a record $4trn globally in 2016, driven in large part by fixed income-focused ETFs. Strong growth in fixed income ETFs saw the sector outpace every product category across the three main regions of America, Asia Pacific and Europe in the past 24 months alone*.
As the range of fixed income ETFs on offer continues to grow, with investors seeking both greater choice and liquidity, State Street Global Advisers (SSGA) believes the key to success within this sector lies in providing a comprehensive suite of physically backed fixed income ETFs, thoughtfully constructed by a firm with over 30 years of history in fixed income index investing.
This is one way the group's extensive range of ETFs, distributed under the SPDR ETF name, offers a unique point of difference. With over $330bn of assets invested in indexed fixed income, SSGA's fixed income ETFs are spread across the spectrum of risk, diversification and yield. However, the ETF range has been specifically designed by the group so that bond exposures are precisely aligned with what investors require for their investment strategy and the market environment today. Historically, some exposures like emerging market debt and global convertibles have only been available via active management.
Stephen Yeats, managing director, fixed income beta solutions APAC and EMEA at SSGA, explains: "When we designed our fixed income ETF range we took what were very institutional quality indices; established and broad based containing lots of countries, currencies, credits and sovereigns. As a range they capture thousands of bonds and the underlying market cap is in the trillions of dollars.
"But we design our ETFs to be more focused than that. This is achieved by breaking up the index into what we consider to be the main trade-offs that investors want. For example, a broad index can be broken down regionally, euro or US aggregate for example. We break that exposure up further by looking at corporates versus sovereigns. We can then break it up again by maturity buckets."
"There are a lot of options when investing in bonds, in terms of duration, regions, credit risk, high yield, and emerging market debt too," Yeats explains. "But we do not believe we need to buy every bond exposure in an index to get the same risk as the index."
Click here to read more about why the size and heritage of group's SPDR ETF range is helping it move ahead of its peers and how its fixed income offering can help investors navigate today's low yield environment.