Bond Index Innovation Driven by ETF Investors: Bloomberg Exec

The rise of the ETF wrapper is continuing to push innovation in the indexing business, according to Bloomberg Index Service CEO Dave Gedeon.

Major new themes in indexing, such as customization, have come “at the behest of the ETF community” as investors continue to up their exchange-traded-fund allocation in a bid to meet specific portfolio goals and objectives.

Gedeon said “complexity and customization” are now setting the agenda for new index design.

“The great thing about the ETF wrapper is you can customize specific investor investment goals and objectives,” Gedeon said.

“Buffer products are a great example of targeting a specific use case, as well as targeted income-based products and the active management space.”

Innovations in Indexing

He highlighted the recent launch of BlackRock’s iBond range, the first fixed maturity bond ETFs in Europe, as innovation hitting the fixed-income indexing sector.

The range—which tracks Bloomberg indexes—launched to much fanfare in August, with several other issuers including DWS set to follow suit.

“An example of the product suite we are particularly fond of is the targeted maturity segment where multiple listings have occurred,” Gedeon said.

“U.S. asset managers are bringing innovation to Europe and we are seeing more appetite for products like this. I do not think the lag of Europe to the U.S. exists as it had maybe a decade ago,” he said.

Gedeon said indexing innovation has been focused mainly on equities over the past decade, but added the “drumbeat of complexity” was now entering fixed income.

“We have seen complexity in the equity space and now it is starting to move into fixed income,” he continued. “As the market uses more electronic trading and liquidity is becoming easier to source it enables us to create a more complex product, but only when trying to solve a specific problem.”

Over half a century, the indexing giant has grown to have a 50% market share of fixed income ETFs globally, but as well alongside calls for more complexity, the current macro environment is also a major challenge for the index provider.

The “Bonds-Are-Back” Narrative

Nick Gendron, global head of fixed-income index product management at Bloomberg Index Service, said the “bonds-are-back” narrative has helped drive innovation.

Commenting on the fixed maturity range, he said: “It will play well in this yield environment and therefore you are going to see several issuers launch.

“In the ETF landscape you must understand what clients are looking for next. You have to respond to every market environment to make sure you have products for rising rates, lowering rates and inflation.”

Gedeon added: “As we move forward it is about how we solve the investment problem of tomorrow while maintaining the quality in our core benchmarks.

“It is a constant iterative product development process, and we are going to continue to be at the forefront of that.”