Bond ETF comes at right time; investors shifting to index-based products globally: Jason Giordano, S&P DJI

Global investors and market watchers sat down and took note as Finance Minister Nirmala Sitharaman announced India’s first debt ETF on Wednesday. Bijoy Sankar Saikia of ETMarkets.com caught up with Jason Giordano, Director of Fixed-Income Product Management at global indices provider S&P Dow Jones Indices, to get a global perspective on the bond ETF and on India’s debt market. Excerpts:-

How does S&P DJI view India’s move to launch debt ETFs?
There is increased market appetite among global investors to shift asset allocations to passive or index-based investments, such as ETFs, from actively-managed funds. This shift has been happening over time and includes stocks, bonds and other types of securities. Investors are attracted to the lower costs and performance consistency of products such as ETFs, because they are designed to closely mirror the risk-return profiles of their respective indices and benchmarks. In India, specifically, this bond ETF is a new product that appears to have been developed to help broaden investor access to the local bond market.

India’s debt market of late has seen a credit crisis and a lot of liquidity problems, leading to a crisis of confidence. Will that hangover affect the takeoff of this product? From a liquidity and depth perspective, does it look like a good time for such a product?
As an index provider, we offer global indices that represent and track performance of different asset classes, sectors, geographies and strategies. We don’t create investment products, manage money or make specific investment recommendations. We’re not in the position to comment on whether or not this is the optimal time to launch such a product. In general, transparency and liquidity are important factors to consider in global credit markets. It usually takes time to build momentum for investment products that have yet to establish their track records.

How will these products help add depth to India’s bond markets?
This is in its nascent stage. Given that investors are looking for cost-efficient ways to invest in the debt market, products like this could potentially help generate more market participation and grow India’s debt market.

Globally, how popular are these products and who are the key participants in them?
As mentioned, there has been increasing institutional and retail investor interest globally on shifting asset allocations to passive investments from actively-managed funds across different types of securities, including stocks and bonds. While the growth varies from country to country or region, we see this trend as a continuum of a shift that has been happening over time.

Global investors often complain about lack of access in India’s bond market? Do you see this ETF as the first step toward opening up the market?
This bond ETF appears to be designed to help broaden the investor base and open access to India’s credit market. It’s still in its nascent stage. Only time will tell on what its long-term impact might be on India’s bond market as a whole.