Worried Index-Based Strategies are Distorting the Bond Market? The Data Says You Shouldn’t Be (Advisor Perspectives, 4 min read)

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Funds flowing into ETFs and passive index trackers have grown significantly in the past decade, but not nearly as much as is commonly claimed. Using two different market value methods, Matthew Bartolini from State Street estimates that index-based assets equate to around 3% of the overall global fixed income market. If we take this one step further and strip out mutual funds, we reach as low as 1%. If we look to trading volumes, Bartolini also shows that the high yield ETF primary market, for example, is a miniscule 2.9% of all cash trading volume.

Why does this matter? Ambiguous data might be clouding the perception of ETF’s and overstating their importance in influencing the fixed income market. Data shows there is no passive bond bubble and investors should be confident in using ETFs. Trading volumes and the ETF wrapper do not influence bond prices – it is the issuing company’s fundamentals and the prevailing market risk that do.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)

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