ETF News

Fixed income ETFs open up "unique" asset classes

Fixed income exchange traded funds (ETFs) offer investors access to "unique asset classes", according to two analysts.

Writing on IndexUniverse.com, Index Publication's managing director of ETF analytics Matt Hougan and the firm's research director Dave Nadig said the funds also allow investors to tap into "virtually every corner" of the fixed income sector.

This can include anything from international treasuries to emerging market debt or specific durations of treasury, corporate and municipal bonds, giving market participants the same ability to "fine tune" the risk-reward profile of their bond portfolio as they have traditionally enjoyed with equities.

Bond indices are not calculated in the same way as stock indices and in some cases, fixed income securities do not trade for days.

Furthermore, there is no central clearing house for bond trades, so indices are calculated using a combination of prices sourced from trading desks and "best-guess" estimates from pricing services.

However, fixed income ETFs operate in a "live market" and therefore accurately reflect the value real investors are placing on a collection of bonds.

In liquid markets like treasuries, Mr Hougan and Mr Nadig said ETFs with substantial assets and trading volumes "do a good job" of indicating the fair value of underlying sectors.