“Fixed-income ETFs have been gaining popularity because through ETF shares, retail investors get the opportunity to invest in Treasuries and corporate bonds, which are typically less accessible to them than stocks,” said Zeng.
This industry has likewise experienced tremendous growth, tripling in size over the last six years to reach US$342 billion by the end of 2021.
According to the study, the passive ETFs in their sample increased liquidity by holding more cash and fewer bonds from their underlying index, causing them to depart from their stated structure\.
“Both facts are costly to the ETF in terms of index tracking,” the paper stated.
The authors’ aimed to make that activity clear to ETF investors. Additionally, the authors said that, in addition to bond ETFs’ “liquidity transformation,” the report focused on their “active basket management, including the dynamic management of their cash balances and individual bonds.”
