Fixed Income ETFs
What are Fixed Income ETFs
Despite the name, fixed income ETFs broadly defined can own either fixed income or floating interest rate securities, or potentially a mix of the two. They can offer exposure to a wide variety of government or supranational bonds, municipal or local government bonds, inflation linked bonds, corporate investment grade bonds, corporate high yield bonds, corporate loans, mortgage-backed securities, floating rate notes, and money market instruments. On the ESG side, there are also “green”, “social”, and “sustainability linked” bonds which can populate dedicated products. All of the above could be in a single country, a regional group such as Europe, emerging markets or global. Most products passively seek to track an index or benchmark, but some can be actively managed.
Fixed income indices are more complicated than equity benchmarks in part because they contain more issues, including multiple bonds from the same issuer, and have a higher turnover of constituents. Therefore, it is not always practical or cost efficient to fully replicate an index through buying every constituent, and a sampling approach may be followed to balance tracking error against transaction costs.
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Understanding ETF Benchmarks
ETF benchmarks are indices that form the foundation for most ETFs, since most are passive products designed to track an index. Many indices such as the S&P 500 or Nasdaq 100 are also widely used as futures contracts, mutual funds, swaps and other sorts of funds. Some more niche indices can be exclusively used by one or more ETFs. Licensing fees for using indices can be expensive and it may be more cost effective to access them through an index aggregator as part of a managed data service, which also helps with index calculation and feeds the relevant data into parties such as APs, which create and redeem ETFs the primary market.
Blackrock
BlackRock owns iShares, which was founded in 1996 and has become is the largest ETF provider worldwide by assets. It has over 1,250 products across asset classes and geographies. iShares is the largest provider of equity ETFs in the Americas.
Vanguard
Vanguard is the second largest provider of ETFs overall in the Americas, and the largest provider of fixed income ETFs in the Americas. Vanguard pioneered low cost equity index funds in 1975 and its ETFs, launched in 2001, intensified fee competition. They often have some of the lowest expense ratios.
DWS
DWS Xtrackers, which launched in 2007, is the second largest ETF provider in Europe after iShares, both overall and for both equities and fixed income.
Niche players
There are dozens of niche players, which ULTUMUS often highlights under UlTUMUS Insights. They include HANetf, Defiance, Rize, and Roundhill Investments, to name but a few. They often specialise in thematic ETFs, and work with dedicated benchmarks from specialist index providers.
Validated data
ETF pricing data, and the market and index data that feeds into ETF pricing need to be validated at multiple levels: metadata, web services, datasets, and APIs. If data is not validated, errors and discrepancies can cause delays and hamper liquidity and pricing accuracy of ETFs.
Client bespoke APIs
Index and ETF data can be delivered via client bespoke APIs, tailored to client structure and requirements.
Amazon Web Service (AWS) stack
The cloud based AWS Stack is renowned for high performance and reliability.
Our market-leading technology powers highly customizable data solutions.
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