Global fixed income ETF assets under management (AUM) are set to hit $5trn by the end of the decade despite the ongoing challenges of the fixed income market, BlackRock has predicted.
According to the world’s largest asset manager, fixed income ETFs have become front and centre of investors’ portfolios since the onset of the pandemic, while institutional adoption has also grown significantly.
BlackRock said there are four key drivers behind the growth, including the evolution of the traditional 60/40 portfolio which now sees investors blending bond ETFs with active strategies.
Bond ETFs’ share of the fund industry has grown from 14% five years ago to 24% today as a result, it said.
Among the fastest-growing adopters are institutions as they look to adapt their portfolios to the current market conditions while reducing transaction costs and managing liquidity in the process.
Regulatory changes in the US have also meant US insurers are now able to use bond ETFs, with eight of the top 10 largest doing so, BlackRock said.
Adoption has also been helped by the growing universe of bond ETFs, which has more than doubled since 2015, and now offers broad-market exposure along with more targeted ETFs tracking regions, credit risk and maturity.
BlackRock added tech innovation has also been key, with electronic trading and algorithmic prices of individual bonds improving transparency and liquidity of the bond ETF market.
Electronic trading volumes of European corporate bonds grew 61% between 2017 and 2020 as smaller institutions such as asset managers and wealth managers sought alternative access to the fixed income market.
Salim Ramji, global head of ETF and index investments at BlackRock, said: “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.”
Furthermore, BlackRock predicts the active bond ETF market will grow five times to $1trn by 2030.
Carolyn Weinberg, global head of product for ETF and index investments at BlackRock, added: “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.
“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.”