BlackRock is predicting roughly $7trn of assets currently tied up in money markets will flood the fixed income space once interest rates have peaked.
The world’s largest asset manager said it was positioning itself – via product offering and performance record – to capitalise on the “once in a generation” opportunity in the fixed income space.
“There is around $7trn in money market accounts. That is ready when people feel interest rates have peaked to flood the fixed income market and we need to position ourselves to capture that,” Rob Kaptio, president of BlackRock, told analysts on its Q2 results call.
“We are calling this a once-in-a-generation opportunity. There is finally income to be earned in the fixed income market.”
According to Kapito, over 80% of all fixed income assets are currently yielding over 4%. He said most investors think yields will continue to rise and added the group is well positioned to take advantage due to its $3.4trn fixed income and cash platform.
“There is finally income to be earned in fixed income and we are expecting a resurgence in demand,” Kaptio said.
The world’s largest asset manager may have to wait a bit longer however, with the market pricing in a 95% chance the Federal Reserve will hike rates by 25 basis points in July, following a pause in June, despite inflation coming in lower than expected.
It comes as BlackRock CEO Larry Fink said it was looking to more than triple its bond ETF assets under management (AUM) to $2.5trn by 2030, up from $800bn today, with global bond ETF AUM set to hit $6trn by the same year.
BlackRock said this will be driven by an increased blend of active and index strategies in fixed income portfolios, a shift to bond ETFs from active strategies and innovation in the product space.
“Bond ETFs are also increasingly being used by active managers for liquidity management, hedging, and efficient tactical asset allocation,” Kaptio added. “In fact, nine of the top 10 global asset managers now use iShares products.”
The asset manager reported fixed income flows accounted for over 70% of its $48bn ETF inflows over the second quarter, gathering $36.7bn in the three months to the end of June.
This year, BlackRock’s bond ETFs have gathered $68.2bn and remain on track to surpass the $123bn new inflow recorded last year, its best on record.
Fixed income ETFs in Europe posted record inflows in H1, with flows hitting €31bn in the six months to the end of June, taking total bond ETF assets on the continent to €348bn.
BlackRock recorded a jump in profits in Q2 on the back of strong inflows and rebounding markets that took its total AUM to $9.4trn, up from $9.1trn in the previous quarter and $8.5trn a year ago.