Interview with Laure Peyranne, Head of ETFs Iberia, Latam & US Offshore at Invesco, about fixed income ETFs and the rest of the range.
Fixed income ETFs and the rest of the classes have become a product in high demand by investors, both in Europe and in the United States. In fact, growth forecasts place the market volume at 19 billion within 5 years. From Invesco, one of the leading managers in these products and those that are innovating the most, we spoke with Laure Peyranne, Head of ETFs Iberia, Latam & US Offshore at Invesco.
In recent years we have seen a large increase in ETF inflows and it seems that passive management is gaining more and more followers, what can we expect in the coming years?
Both in Spain and globally, the increase in the adoption of ETFs continues, driven by competitive cost, transparency and high liquidity. Globally, assets have tripled in the last 5 years with annual growth of around 20%; In the United States, passive management has even surpassed active management in business volume (50.02% compared to 49.98% at the end of January 2024, according to Morningstar data) and in Europe the growth is exponential, the Passive management market share has doubled in the last decade. Growth expectations are based on greater use of ETFs in asset classes where they were not used or used very sparingly, such as fixed income, in addition to the innovation of the industry, which continually launches new products that capture new market segments. Forecasts indicate that in 5 years passive management will reach 19 trillion dollars managed compared to the current 12 trillion.
“The biggest growth we have seen in recent years has been in fixed income ETFs”
What type of ETFs are most in demand by investors?
Traditionally, these have been ETFs that offer exposure to equities, especially in those markets where passive management has performed better than active one, such as US equities, where the share of passively managed assets far exceeds 70% of the total, according to Morningstar data. However, the greatest growth we have seen in recent years has been in fixed income ETFs, where the 2020 crisis due to the pandemic demonstrated that ETFs not only overcame the liquidity crisis without problems, but were even capable of replace the spot market when it comes to offering liquidity and price. Investors are looking for innovative products that offer exposure to specific segments of the fixed income market, such as AT1 bonds. We have also seen an increase in demand for commodity exchange-traded funds, with gold as the main product but also for baskets of commodities.
What are Invesco’s plans for launching new ETFs on the market?
Invesco is characterized by the innovation of its range. We always seek to offer customers innovative products that meet the specific needs of our customers. We have recently launched an ETF that allows you to invest in commodities but from a low-carbon approach. That is, it seeks to reduce the impact on the environment, which is absolutely innovative. We now prepare fixed-maturity fixed income ETFs, which allow investors to plan the maturity of their investments and thus ensure a continuous flow of income, something especially relevant in situations such as retirement or covering regular payments, such as a mortgage.
How does European regulation on sustainable finance and the classification of funds in article 8 and 9 affect ETFs?
“The European Sustainable Finance Disclosure Regulation (SFDR) aimed to address three key issues: 1) Improving transparency, 2) Avoiding Green Washing, 3) The correct identification of sustainable investments, products and companies. The reality is that it has had difficulties in achieving these three objectives, which in turn has had an impact on the ETFs. Article 9 requires ETFs to take into account all 18 PAIs (Main Adverse Impacts) related to activities. that have a negative impact on sustainability and it is not easy to measure it. Some of the PAIs are quite specific, such as the one that defines the proportion of hazardous waste, when others are more confusing, such as the “social” PAIs, we still have to work to ensure that there are. standardized criteria so that all funds addressed the PAI in the same way, to be able to compare funds from different managers.
UCITS ETFs are marketed throughout Europe and often need to be adapted to fit the local nuances of specific regions. In the case of SFDR regulation, this has been even more evident. Most ETFs try to replicate indices and therefore, to address specific issues, they need accurate and reliable data that can be incorporated into the underlying methodology. This can be difficult in areas such as biodiversity, which is already an EPI that needs to be addressed. Furthermore, ESMA has proposed the introduction of three new PAIs linked to data that companies are not yet required to notify. The ETF needs to have sufficient data on the PAIs that can be incorporated into the index it tracks. If that data is not available, it may involve a change to the index methodology later.
There is little talk about, and barely known about, active ETFs. Do you have plans to promote this type of products in the manager?
Today it is a very niche segment, but with very significant growth, especially in the United States due to the tax advantage that ETFs offer there. In Europe, they are also growing but represent 1.8% of assets invested in ETFs. At Invesco we always seek to meet the needs of our clients, which is why we offer actively managed ETFs where we see that there is a demand from investors.
