After a decade of low rates and abundant central bank liquidity, market conditions are going to be much more challenging over the next decade. According to Jason Xavier, Head of EMEA ETF Capital Markets at Franklin Templeton, these developments mean that a major opportunity is brewing for active fixed income ETFs. He discussed this in a post for Franklin Templeton’s Beyond Bulls & Bears publication.

While most fixed income ETFs are passive, the active category is exploding in response to the need of investors to express various views. In contrast to passive strategies, active ETFs utilize fundamental analysis and have greater discretions on which instruments they can select rather than be limited by an index. Active managers have greater flexibility to respond to a change in market conditions or external catalysts unlike passive managers. 

In the fixed income space, the ETF structure leads to increased price transparency and liquidity especially compared to traditional bond markets which are typically quite opaque. ETFs also give smaller investors access to fixed income opportunities which were typically only available to high net worth investors or institutions. 

In sum, Xavier believes active fixed income ETFs will continue to see growth as they are likely to outperform in more volatile conditions and will lead to increased transparency and liquidity in the fixed income market.

Finsum: Franklin Templeton’s Jason Xavier sees the active fixed income ETF category continuing to rapidly grow as it offers major benefits to investors.