According to recent Cboe data, the Australian exchange-traded fund (ETF) market is on track to surpass $300 billion in assets under management by year-end, with monthly flows hitting record highs driven by international equities and fixed income.
In a statement this week, PIMCO said it expects momentum in fixed income ETFs to establish new benchmarks for both fund flows and asset levels, reflecting increasing confidence in ETFs as essential portfolio instruments.
“Domestic fixed income ETFs are seeing robust inflows as demand shifts in the hybrid market, with rising interest in fixed income exposure overall,” the fund manager said.
Elaborating further in conversation with InvestorDaily, a PIMCO spokesperson said the growth in fixed income is being driven by a combination of market conditions and innovation in ETF structures.
“With central banks around the world – including the RBA – on a tightening cycle through 2024 and continuing into 2025, bond yields have been revived, making fixed income attractive again. As rates begin to trend downward, bonds are presenting Australian investors with compelling opportunities for 2025 and beyond, offering both stability and income amid equity market volatility,” the spokesperson said.
Regarding innovation in ETF structures, PIMCO highlighted that of the 427 ETFs listed in Australia across the two exchanges, only 86 are fixed income ETFs and approximately 48 per cent of these were launched since 2023.
“This rise in new fixed income ETFs has been driven not just by traditional passive providers but also by active managers like ourselves, who are bringing best-of-breed active bond strategies to Australian investors,” the spokesperson said.
They also stressed the role of advisers in driving allocations to fixed income.
“They’re not only recognising the investment opportunities that fixed income presents but also the diversification and risk-reduction benefits it offers in the face of ongoing market disruption and geopolitical uncertainty,” PIMCO said.
Active bond strategies in particular are gaining traction, the fund noted, reinforcing its focus on “high-quality fixed income solutions in Australia”.
“The growth in active fixed income strategies has been fuelled by a realisation among investors that, in this asset class, active management consistently demonstrates its value – especially in volatile or complex market environments where passive strategies often fall short,” the spokesperson said.
Citing recent analysis as at 31 March 2025, which looks at the largest fixed income market – the US – PIMCO found that over the past decade, 64 per cent of active bond funds outperformed their passive peers after fees.
The shift towards fixed income mirrors broader changes in investor behaviour, with older investors especially seeking defensive, income-generating options.
ETFs are enabling these investors – from retail to self-managed super funds (SMSF) – to access fixed income markets with greater flexibility, liquidity and transparency than traditional managed funds or term deposits.
Catching on to the trend, fund managers are racing to respond, with asset managers from Perpetual to Schroders vying for a slice of the fastest-growing segment of the domestic ETF market.
For many, including head of Australian fixed interest at Janus Henderson, Jay Sivapalan, a key benefit of fixed income in an ETF wrapper is the enhanced accessibility and reach it offers.
“In today’s fast-moving markets, this allows investors to take tactical positions and seize potentially fleeting opportunities to reduce risk and generate additional returns,” he said.
The investment firm listed its Janus Australian Fixed Interest Active ETF (JFIX) on Cboe Global Markets in February, joining Janus’ existing local product suite which already included two active fixed-interest ETFs.
Sebastian Mullins, Schroders Australia’s head of multi-asset and fixed income, agreed that ETF wrappers have extended bond market investing to new players.
“In particular, self-directed investors (including SMSFs) and brokers are now able to trade active strategies via ETF wrappers from a long list of active managers that were only once accessible through traditional managed funds,” he said.
Schroders similarly added to their collection of credit and fixed income ETFs in February with the introduction of their High Yielding Credit Fund Active ETF.
Advisers are also increasingly using ETFs to improve transparency and tax efficiency within managed accounts, despite initially being slow on the uptake.
Perpetual’s August launch of its first active fixed income and credit ETF marked an even broader industry shift – with a traditional fund manager now fully embracing the ETF wrapper.
Meanwhile, Betashares is Australia’s largest provider of cash and fixed income ETFs, much of which has grown only in the last few years.
Betashares began focusing on its extensive range of fixed income ETFs around 2017.
Speaking to InvestorDaily last month, Chamath De Silva, the firm’s head of fixed income, explained that it saw the potential for ETF wrappers to offer scalable “building blocks” – enabling investors to efficiently construct diversified fixed income portfolios.
“That’s really the opportunity we saw and we’ve leaned into it and it’s been a good decision for us,” he said.
When considering the path ahead, PIMCO noted it’s clear that the investment opportunity in fixed income is gaining recognition across the Australian investor landscape.
“The 60/40 portfolio is often touted with 40 per cent sitting in fixed income, but when looking at the asset mix of the Australian ETF landscape based on Cboe’s July report, fixed income assets are only accounting for 12.1 per cent of ETF assets representing a strong runway of growth for this segment,” it said.
