Institutional Investors Accelerate Use of Fixed Income ETFs, Driving Record Growth
Global fixed income exchange-traded funds (ETFs) grew 30% in the past twelve months, driven by increased investor appetite for liquid, transparent, and efficient access to the bond market. 1 Fixed income ETF assets under management (AUM) ended June at a record $1.3 trillion. Most of this growth (84%) came from inflows: iShares alone added $105 billion, evenly split between the second half of 2019 and the first half of 2020.2
Record inflows in the most recent quarter – including $57 billion into iShares – show that bond investors are increasingly using ETFs to rapidly reposition portfolios in light of changing market conditions, price individual bonds and portfolios, reduce transaction costs, manage liquidity, and hedge risk.3 Institutional clients—from pensions funds to active managers— that recognized the versatility of fixed income ETFs, accelerated their adoption of ETFs. Globally, BlackRock counted over 60 pension funds, insurers, and asset managers that were first time buyers of iShares fixed income ETFs, which collectively added about $10 billion in assets.4
“The versatility and resilience of the largest and most heavily traded fixed income ETFs, especially through market stresses this year, have made them more central to the construction of institutional investors’ portfolios,” said Salim Ramji, Global Head of iShares and Index Investments at BlackRock. “Accelerated institutional adoption is further recognition that ETFs are modernizing the bond markets by increasing overall transparency, improving liquidity, and lowering trading costs.”
BlackRock Affirms Global Fixed Income ETF Assets Will Reach $2 Trillion by 2024
Eighteen years ago, iShares pioneered fixed income ETFs with the launch of iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD). Since its inception, the industry has grown to 1,690 fixed income ETFs and $1.3 trillion in assets. Even so, ETFs still represent only about 1% of the $100 trillion global fixed income securities market.5 Bolstered by recent adoption patterns, BlackRock believes that institutional investors will help expand global fixed income ETF assets to $2 trillion by 2024.
“Fixed Income ETFs helped the credit markets operate better during times of market stress, including the unprecedented turmoil seen earlier this year,” said Carolyn Weinberg, Global Head of iShares Product at BlackRock. “These ETFs contributed significantly to the financial ecosystem by providing additional liquidity and price discovery, relieving pressure from the underlying bond markets at a time when that was required.”
Simplified Processes, Improved Outcomes
Today, BlackRock published new research illustrating how fixed income ETFs performed during the first half of 2020, with details on ETF usage patterns, liquidity dynamics, and transaction costs under extreme market stress. Case studies from insurance companies, pension funds, and asset managers around the world, including first time buyers of fixed income ETFs, highlight the central role these funds played as part of the overall bond market exposures toolkit.
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iShares unlocks opportunity across markets to meet the evolving needs of investors. With more than 20 years of experience, a global line-up of 900+ exchange traded funds (ETFs) and $1.85 trillion in assets under management as of March 31, 2020, iShares continues to drive progress for the financial industry. iShares funds are powered by the expert portfolio and risk management of BlackRock, trusted to manage more money than any other investment firm.
- BlackRock. For 2018, flows are from 01/01/2018 to 12/31/2018 and for 2020, flows are from 01/01/2020 to 06/30/20.
Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. Diversification and asset allocation may not protect against market risk or loss of principal. Buying and selling shares of ETFs may result in brokerage commissions.
This material represents an assessment of the market environment as of the date indicated and should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change. The information provided here may not be representative of the experiences of other individuals and does not guarantee future performance.
Shares of iShares ETFs may be bought and sold throughout the day on the exchange through any brokerage account. Shares are not individually redeemable from the ETF, however, shares may be redeemed directly from an ETF by Authorized Participants, in very large creation/redemption units. There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.
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1 BlackRock, 12 months ending June 30, 2020
2 BlackRock, as of June 30, 2020
3 BlackRock, as of June 30, 2020
4 BlackRock, as of June 30, 2020; estimate is based on client interactions in and is not intended to be comprehensive.
5 ETF count and AUM: BlackRock, June 30, 2020; Market size: BlackRock, Markit, SIFMA, as of December 2019
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