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Institutional investors accelerate use of Fixed Income ETFs, driving record growth

22 Jul 2020
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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.

Fixed income ETF assets under management (AUM) ended June at a record US$1.3 trillion. Most of this growth (84%) came from inflows: iShares alone added US$105 billion, evenly split between the second half of 2019 and the first half of 2020.

Record inflows in the most recent quarter – including US$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. 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 US$10 billion in assets.

“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.”

Global Fixed Income ETF assets to reach US$2 trillion by 2024

iShares pioneered fixed income ETFs eighteen years ago and since its inception, the industry has grown to 1,690 fixed income ETFs and US$1.3 trillion in assets. Even so, ETFs still represent only about 1% of the US$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 US$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.”

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