Faster investor adoption and novel bond ETF applications driving
23% annual growth rate
Despite the most challenging fixed income market in decades,
BlackRock projects that global bond exchange-traded funds (ETFs)
assets under management (AUM) will triple to $5 trillion by
2030.1
The extreme market volatility in the early days of the pandemic
reinforced the versatility of bond ETFs. As a result, over the past
two years more wealth managers have put bond ETFs at the center of
their portfolios and institutional adoption of bond ETFs has
broadened and deepened.
“Bond ETFs have revolutionized fixed income investing as they
provide instant access at transparent prices to hundreds of bond
market exposures in ways that are accessible to all investors,”
said Salim Ramji, Global Head of ETF and Index Investments at
BlackRock. “Bond ETFs have grown by proving to be useful and
resilient investment tools during various market conditions
including near-zero interest rates, pandemic-related market
stresses and inflationary pressures. Bond ETFs have overcome many
tests, and they have become the catalyst of a more modern, more
digital and more transparent bond market.”
Driving a Third Decade of Bond ETF Growth
BlackRock pioneered bond ETFs 20 years ago and what started as
four products has grown 23% annually into a $1.7 trillion industry
with more than 1,400 products.2 Despite this growth, bond ETFs
comprise just 2% of the $124 trillion fixed income asset
class.3
“The global bond ETF industry is growing faster than we
expected, propelled by self-reinforcing and enduring adoption
trends from our clients during the pandemic era,” said Carolyn
Weinberg, Global Head of Product for ETF and Index Investments.
“We believe that the next wave of growth is just beginning. While
much of this growth will come from increased adoption of existing
products, we are excited for the innovations that incorporate more
active management – which we believe will grow five times to $1
trillion in assets by 2030.”
BlackRock’s new paper All systems go, published today,
identifies four trends that we believe will help drive further
adoption of bond ETFs, with details on trading dynamics, ETF usage
patterns, market structure evolution, and implementation strategies
of new investment concepts.
- Building blocks in evolved 60/40
portfolios: Bond ETFs’ market share in the fund industry is
24% compared to 14% five years ago as more investors are blending
bond ETFs with active strategies, moving from one type of fixed
income exposure to another, reframing the traditional 60/40
portfolio and bond construction in the process.4
- Tools for seeking active returns:
Institutional clients—from pensions funds to active managers— are
among the fastest-growing adopters as they turn to bond ETFs to
adapt their portfolios to changing market conditions, price
individual bonds and portfolios, reduce transaction costs, manage
liquidity, and hedge risk. Further tailwinds come from recent
regulatory changes in the U.S., putting bond ETFs on a more level
playing field with individual bonds and allowing U.S. insurers to
use ETFs more freely.5 Eight of the 10 largest U.S. insurers use
bond ETFs, and five of them started using them after the volatile
markets of March 2020.6
- Increasingly precise sources of potential
returns: The number of bond ETFs available to trade has
doubled since 2015 with the industry expanding investor choice from
tracking broad market segments to providing more targeted exposures
by region, credit risk or maturity to offering advanced strategies
that incorporate active management.7 Investors are implementing
these strategies alongside traditional bond ETFs, individual bonds
and other fixed income instruments, and BlackRock believes this
next generation of more active bond ETFs can reach $1 trillion in
AUM by 2030, up from about $200 billion today. 8
- Catalysts for modernizing bond
markets: Market structure changes amid the 2008-2009 global
financial crisis prompted the first wave of bond ETF adoption.
Since then, the growth of bond ETFs and their ecosystem has helped
drive advances in electronic trading and algorithmic pricing of
individual bonds, improving transparency and liquidity in
underlying bond markets. Electronic trading volumes in U.S.
investment grade bonds at the end of March 2022 accounted for 36%
of total traded volumes for those bonds, up from 21% in early
2019.9 Meanwhile, electronic trading volumes of European corporate
bonds grew 61% between 2017 and 2020, reflecting the needs for
smaller institutions, such as asset managers and wealth managers to
seek alternative means of fixed income market access.10
For more information and to learn more about bond ETFs,
individual and institutional investors can click here.
About BlackRock
BlackRock’s purpose is to help more and more people experience
financial well-being. As a fiduciary to investors and a leading
provider of financial technology, we help millions of people build
savings that serve them throughout their lives by making investing
easier and more affordable. For additional information on
BlackRock, please visit www.blackrock.com/corporate.
About iShares
iShares unlocks opportunity across markets to meet the evolving
needs of investors. With more than twenty years of experience, a
global line-up of 900+ exchange traded funds (ETFs) and $3.15
trillion in assets under management as of March 31, 2022, iShares
continues to drive progress for the financial industry. iShares
funds are powered by the expert portfolio and risk management of
BlackRock.
Important Information
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. Non-investment-grade debt securities (high-yield/junk
bonds) may be subject to greater market fluctuations, risk of
default or loss of income and principal than higher-rated
securities.
International investing involves risks, including risks related
to foreign currency, limited liquidity, less government regulation
and the possibility of substantial volatility due to adverse
political, economic or other developments. These risks often are
heightened for investments in emerging/ developing markets or in
concentrations of single countries.
There can be no assurance that an active trading market for
shares of an ETF will develop or be maintained. Transactions in
shares of ETFs may result in brokerage commissions and will
generate tax consequences. All regulated investment companies are
obliged to distribute portfolio gains to shareholders.
Diversification and asset allocation may not protect against market
risk or loss of principal.
When comparing stocks or bonds and iShares Funds, it should be
remembered that management fees associated with fund investments,
like iShares Funds, are not borne by investors in individual stocks
or bonds.
Actively managed funds do not seek to replicate the performance
of a specified index. Actively managed funds may have higher
portfolio turnover than index funds. Index funds are not actively
managed and will not attempt to take defensive positions under any
market conditions, including declining markets.
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.
This information 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.
This material contains general information only and does not
take into account an individual’s financial circumstances. This
information should not be relied upon as a primary basis for an
investment decision. Rather, an assessment should be made as to
whether the information is appropriate in individual circumstances
and consideration should be given to talking to a financial
professional before making an investment decision.
The iShares Funds are distributed by BlackRock Investments, LLC
(together with its affiliates, “BlackRock”).
©2022 BlackRock, Inc. All rights reserved. iSHARES and
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1 BlackRock projections are subject to change and there is no
guarantee any projections will come to pass. 2 Bond ETF average
annualized growth rate of 23.4% compares with open-end mutual fund
growth rate of 9.5% in the five years ended Dec. 31, 2021. Simfund
for U.S. MFs (as of December 2021), Broadridge for non-US MFs (as
of November 2021), BlackRock GBI iShares for global ETFs (as of
December 2021). 3 Current global bond market size: Bank of
International Settlements, Securities Industry and Financial
Markets Association estimates found in 2021 SIFMA Capital Markets
Fact Book, July 28, 2021; See also: BlackRock, “Transforming the
Bond Markets with Fixed Income ETFs,” July 2021. 4 Source:
Morningstar Direct, Bloomberg, BlackRock as of 12/31/21. US Fixed
Income AUM & Trading Activity: 2021 Review, Published January
2022 by BlackRock 5 BlackRock, “Unlocking new opportunities: How
the evolving regulatory and market environment is creating new
opportunities for insurers to use fixed income ETFs,” April 14,
2022. 6 S&P Global Intelligence, BlackRock analysis of fillings
with the National Association of Insurance Commissioners (NAIC) and
the Securities and Exchange Commission. 7 Source: Morningstar
Direct, Bloomberg, BlackRock as of 12/31/21. US Fixed Income AUM
& Trading Activity: 2021 Review, Published January 2022 by
BlackRock 8 BlackRock, Bloomberg (as of April 15, 2022). 9 Source:
Coalition Greenwich (as of March 31, 2022). 10 Source: Coalition
Greenwich (as of March 31, 2022).
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MEDIA:
Soogyung Jordan Soogyung.jordan@blackrock.com
646.276.5403
Luke Shane Luke.shane@blackrock.com 646.592.1672
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