Providers of fixed-income exchange-traded funds (ETF) need to provide financial advisers and retail investors with adequate education if the products are to be successful, according to fixed-income manager PIMCO.
"The uptake of fixed-income ETFs by retail investors will be largely determined by the willingness of the industry to educate people about fixed interest and the ability of the buyer community - whether that be financial advisers, brokers or individual investors - to assimilate that information and understand the attributes of that asset class," PIMCO Australia head John Wilson said.
But Wilson questioned whether providers were willing to commit funds to educational programs.
"I think that whoever enters that arena has to be ready to do a very large-scale education job and I'm not sure if any one vendor that is likely to be a launcher of a fixed-income ETF strategy has the preparedness and willingness to do that," he said.
Apart from education around the asset class, fixed-income ETFs are quite different from equity ETFs because the underlying securities are not listed and, therefore, have varying levels of liquidity.
The current economic environment has also led to a dramatic change in the risk profiles of fixed-income securities and Wilson questioned the sense of ETFs over passive fixed-income indices.
"The first products that will be launched in the fixed-income space will be passive and I'm not sure that naively owning a particular duration outcome is the best possible portfolio for an accumulator or retiree," he said.
PIMCO, which is an active manager, would not be offering any fixed-income ETFs in Australia in the near future, he said.
"I think there are more legitimate ways for investors to access our skill than through an ETF," he said.
PIMCO does offer an ETF over its actively managed bond fund, managed by high-profile manager Bill Gross, but Wilson said that could be done because the managed fund already had sufficient scale.
"ETFs generally do not lend themselves for active fixed-income management in their early stages, because they don't have the critical mass," he said.
Russell Investments director of Australasian ETF product development Amanda Skelly agreed education would be key to the success of fixed-income ETFs, but also said Russell would commit the resources to providing appropriate education.
"Education continues to be critical for all areas of the ETF landscape, but is particularly relevant given the upcoming launch of fixed-income ETFs and Russell has been dedicating significant effort to this," Skelly said.
"To support the launch of the Russell Australian Bond ETF suite, we are launching a fixed-income education hub.
"This will include bond basics, comparisons to other types of investments, a modelling tool and asset allocation ideas.
"We also see the invaluable role that advice plays in this area and we are working directly with advisory firms on supporting education in this space."
She pointed out that research indicated a robust demand for the asset class.
"In the recent SPAA/Russell SMSF research, advisers were asked what the main areas of advice were. The top response was bonds and fixed-interest investments," she said.
