Matt Legg, Global Head of Delta One & ETF Sales at J.P. Morgan, and Julie Abbett, Head of US ETF Sales for Equities and Credit, dive into the evolving world of bond ETFs. They discuss how these financial instruments are enhancing liquidity and price discovery, especially during market volatility. The duo highlights the surge in bond ETF popularity and the impact on trading dynamics across the U.S. and Europe. They also touch on actively managed ETFs and the critical need for increased market transparency in this fast-paced trading landscape.
The bond ETF market has grown significantly to $2.5 trillion, reflecting their vital role in enhancing trading liquidity and market resilience.
Recent trends show a rise in actively managed ETFs and options integration, highlighting innovation in investment strategies and diverse return access for investors.
Deep dives
Growth and Impact of Credit ETFs
The credit ETF market has seen significant growth, with assets in bond ETFs reaching approximately $2.5 trillion, marking a substantial increase from previous milestones. This growth reflects an increased adoption of ETFs as both investment and trading assets, accounting for 15% of total ETF traded volume in the U.S. and 25% in Europe. Amid market volatility, such as in March 2020, ETFs have proven to provide vital liquidity and act as price discovery instruments, allowing investors to access bond beta effectively. The rising confidence in ETFs demonstrates their essential role in enhancing market resilience and attracting a broader group of investors.
Differences in U.S. and European ETF Markets
The U.S. ETF market is the largest globally, surpassing $10 trillion in total assets, with fixed income ETFs alone exceeding $1.6 trillion. In contrast, the European ETF market is more fragmented, primarily due to a lack of a consolidated tape, which limits on-exchange trading. During periods of market stress, the volume of ETF trading tends to increase more in the U.S., reaching up to 38%, highlighting a greater reliance on these instruments in turbulent times. The introduction of a consolidated tape in Europe is anticipated to improve transparency and liquidity, potentially bringing the European ETF landscape closer to that of the U.S.
Emerging Trends in Active Management and Options
Recently, actively managed ETFs have gained momentum, accounting for over 60% of new ETF launches and capturing significant inflows in the U.S. This shift is driven by regulatory changes that enhance tax efficiency and the growing appeal of thematic investment strategies. Additionally, the intersection of options and ETFs is expanding, with options being used for both downside protection and non-linear return strategies. The growth in options-based ETFs has enabled investors to access diverse return streams, marking a notable evolution in ETF offerings that cater to varying investment needs.
As innovation in the fixed income landscape continues to evolve, Meridy Cleary from the FICC Market Structure & Liquidity Strategy team is joined by Matt Legg, Global Head of Delta One & ETF Sales, and Julie Abbett, Head of US ETF Sales for Equities and Credit, to discuss the role of ETFs in fixed income, the rise of ETF options, European and U.S. markets, and more.
This episode was recorded on October 22, 2024
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