It’s no secret that bond ETFs are changing the fundamentals of fixed income. Over the past decade, their popularity has boosted the turnover of securities that used to be thinly traded, increasing liquidity, transparency, and access to a market traditionally reserved for institutional investors. At ICE, we have a front row seat to these dynamics through the development of our indices - the backbone of hundreds of ETFs - and platforms we provide to help boost efficiencies in these markets. Bond ETF assets are approaching the $US2.5 trillion mark globally, and BlackRock sees this level tripling by 2030 or sooner. The asset manager notes that bond ETFs reached flow parity with equity ETFs last year, while other players expect that bonds will outperform stocks in the coming decade.

So, what do we see as the latest trends? At a headline level, passive strategies continue to dominate. Passive AUM tracking our indices across fixed income leapt 60% in just two years, with interest in passive bond funds supported by their low cost and liquidity. In terms of sectors, semiconductor ETFs are among the most popular strategies backed by our benchmarks, offering one way to diversify risk in the volatile tech sector. In fixed income, both long and ultra-short Treasury funds have attracted flows; the ultra-short offering a chance to capitalize on expected rate cuts - a dynamic that should also see long Treasury funds increase in value.

Across Asia-Pacific, the popularity of ETFs is surging with the expansion of middle-class wealth. For the first half of 2024, the rise in assets benchmarked to ICE indices outstripped full year 2023.1 In Taiwan, investors have shown an appetite for ETF customization, along with strategies focused on the AI supply-chain, dividends, and robust fixed income yields. Providing a further tailwind, the country’s financial regulator recently allowed active and multi-asset ETFs - a bid to bolster its attractiveness to global asset managers. APAC investors have also used ETFs to tap offshore market dynamics - in Japan for example, U.S. Treasury ETFs and U.S. equity strategies have provided access to yield in a country where the era of negative rates only recently ended.

More broadly, bond ETFs continue to have a positive effect on the markets they represent. What’s next for this segment? Like many of you, I’ll be watching with interest.

1 $US11.1 billion increase in first half 2024, $US8.3 billion increase in full year 2023; in percentage terms 43% in H1 2024 vs. 47% in 2023

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