PT - JOURNAL ARTICLE AU - A. Seddik Meziani TI - Exploring the Complex Universe of Fixed-Income ETFs: <em>Is More Better or Is Less More?</em> AID - 10.3905/jii.2015.5.4.072 DP - 2015 Feb 28 TA - The Journal of Index Investing PG - 72--89 VI - 5 IP - 4 4099 - https://pm-research.com/content/5/4/72.short 4100 - https://pm-research.com/content/5/4/72.full AB - The debut of fixed-income ETFs in 2002 and 2003 was anxiously anticipated by investors who regard bonds as an essential part of a diversified portfolio. After a slow start that lasted a few years, bond ETFs suddenly started being issued in droves. Even the 2008–2009 financial crisis, which had quite an impact on equity ETFs, didn’t slow down the relentless growth of bond ETFs. That favorable market picture wasn’t matched, however, by their risk-adjusted returns. Most delivered, at best, lukewarm performance. In their defense, proponents of fixed-income investing have typically pointed to the overall low correlation between bonds and other asset classes as one of the main benefits of investing in this asset category, so in this article, the authors analyze the diversification potential of bond ETFs. The results were quite outstanding, as many bond ETFs showed highly favorable correlations in terms of both magnitude and direction of the sign of their coefficients with two major equity benchmarks. As is the case for other asset categories of the ETF market, however, the authors also noticed excessive duplication in the fixed-income segment of the market, making a compelling case for “less is more.”TOPICS: Exchange-traded funds and applications, fixed income and structured finance, financial crises and financial market history