As exchange-traded funds (ETFs) continue their steady climb in portfolios around the globe, one investor in particular is finding new and interesting uses for them—hedge funds. According to London-based ETFGI. they’re using ETFs in greater numbers as they work to boost performance after a few years of disappointing returns.

As things look up for 2014 (indeed, 2013 saw the HFRI Fund Weighted Composite Index post a gain of 9.2%), more and more hedge funds could be looking to the ETF space to broaden their product lineup to meet the needs of clients, including institutional investors on the hunt for better bond returns.

This interview with hedge fund manager Garth Friesen shows exactly how ETFs fit into his strategy. He is principal of III Associates, an affiliate of Boca Raton, Fla.-based AVM L.P. a brokerage, trading and administrative service with $3 billion in assets under management.

His firm, which runs three strategies (fixed income arbitrage, long/short credit and tail hedging and volatility strategies), uses ETFs because they’re transparent and cheaper, and because they offer real-time analytics that are particularly handy for hedge funds like his.

Perhaps the biggest draw right now, however, is the access ETFs provide to the growing fixed income space, allowing investors to go beyond simply Treasuries and to explore alternative fixed income. As the manager tells ETF.com:

There are so many different subasset classes in fixed income now that can be accessed, such as the loan market, floating-rate Treasurys, municipal bonds and taxable munis.

It’s a trend that was outlined in the BMO Canadian ETF Outlook Report, which pointed out the link between new alternative fixed income ETFs and the outflow of investor money from long-term bond products.

For Friesen’s fund, ETFs are an easier way to enter into new and growing sub asset classes. Products like these are in high demand by institutions, particularly pension funds, looking for access to tactical fixed income management through an unconstrained bond portfolio.

Friesen is only one investor, of course, but his perspective sheds light on the growing role ETFs are playing in the strategies of some of the most sophisticated investors in the marketplace. And in the fixed income space, which is heating up rapidly as interest rates rise, the need for liquidity and transparency has never been greater. This could be one big area growth going forward.