Fixed income packaged in ETFs an investor’s jackpot: Global X

New commentary from Global X ETFs has confirmed the point of intersection between exchange traded funds (ETFs) and fixed income as the investor jackpot.

Fixed income has guided Australian investors through the latest period of economic and market volatility, as they look to shed risky exposures and achieve consistent returns. ETFs have also “stolen the limelight from managed funds” as a low-cost, reliable option for investors.

This combination, Global X ETFs says, is powerful, offering investors the opportunity to defend their portfolio against the impacts of potential market downturns and generate reasonable yields from fixed income securities without the risk.

Based on data from Morningstar, the Australian Securities Exchange (ASX) and Cboe, Global X ETFs found:

• Currently valued at approximately $28 billion, fixed income ETFs now constitute 14% of the total Australian ETF market, a substantial increase from the 7% market share they held ten years ago.
• Notably, in 2023, the inflows into fixed income ETFs were on par with those into equity ETFs for the first time ever.
• An impressive $6.5 billion was invested into fixed income ETFs in 2023, representing 43% of the total market flows, the highest proportional level recorded.
• Moreover, there has been an increasing number of fixed income managed funds experiencing outflows, underscoring the structural shift from high-cost to low-cost investing in more transparent and tax-efficient structures like ETFs.
• While the vast majority of fixed income ETFs have enjoyed positive net flows so far in 2024, over 50% of actively managed fixed income managed funds have seen investors pull their money out.
• The fixed income component of the Australian ETF market has seen increasing product availability (now over 70 products available) with new innovative solutions being launched to help cater for Australian investor needs.

Off the back of its Global X Australian Bank Credit ETF launch, the manager also announced the appointment of Stephen Parker as Portfolio Manager. In the new role, Parker will be responsible for building on and taking to market Global X’s product suite.

“Stephen’s appointment coincides with the launch of the new Global X Australian Bank Credit ETF (BANK), providing a first-to-market diversified solution enabling investors to combine three different fixed income security types dedicated to Australian banks across the capital stack into one cost-effective index-based product listed on the share market,” a statement from Global X ETFs said.

“Australian banks are some of the highest-quality financial institutions in the world, recognised for their lower risk and strong capital positions. They are paying attractive yields on some of their fixed income securities like senior bonds, subordinated debt and hybrids, which are higher than what their term deposits are offering.

“While these securities were once hard to access by everyday investors, ETFs have democratised access to this asset class, making fixed income easier, more liquid and cheaper to manage.”