Passive fixed income inflows have gained significant momentum in recent years, but this category still falls behind passive equity strategies in terms of market share and adoption. Over the past decade, passive equity funds have emerged as the primary approach for investors to gain exposure to equities. Currently, passive equity funds represent 45% of global funds, whereas fixed income accounts for 24%. Additionally, passive equity funds constitute 19% of the global market, while passive fixed income comprises only 2%.
S&P Dow Jones Indices predicts an upsurge in the adoption of passive fixed income strategies in the next decade, mirroring the ascent of passive equities. Inflows and market share of passive fixed income strategies are already growing at a quicker pace than equities.
It’s worth noting that bond index funds in ETF form were not introduced until 2002, whereas equity ETFs were launched in 1993. Furthermore, there are a limited number of fixed income benchmarks relative to equities. Replicating a bond index is more challenging due to the large number of securities, higher trading costs, increased turnover, and the need for heightened oversight in managing maturation dates, defaults, credit rating changes, and new issues. Overall, it requires approximately 10 times more trades to track a fixed income benchmark than an equity benchmark.
Finsum: Passive fixed income flows have surged in recent years due to attractive yields. Here’s why some anticipate a boom in the category over the next decade, similar to passive equities, and what has hindered its progress.
- bonds
- ETFs
- fixed income
- equities
- inflows
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