BlackRock founder, chairman and CEO Larry Fink has said we are at the dawn of a “major expansion of bond ETFs” that will create “one of the most important transformations in the entire capital market” after iShares posted a record year of net inflows into fixed income ETFs in 2022.

Speaking to investors following the publication of BlackRock’s annual results on 13 January, Fink said the fixed income ETF market is the biggest tailwind supporting its growth trajectory in 2023 with every active investor now using ETFs as a component of their bond portfolio.

BlackRock recorded net inflows of $123bn into its bond ETFs last year – its highest on record – with $47bn coming in Q4 alone, its second-best quarter in history, the asset manager said.

Fink added BlackRock had six of the top 10 asset-gathering bond ETFs in 2022.

“Movement out of mutual funds into ETFs provides much greater precision expertise to manage your fixed income exposures through ETFs,” he said. 

“This [rotation] will become one of the most important transformations in the entire capital markets. More and more bond exposures will be utilised through ETF purchases and used side by side with investors’ usual bond allocations.”

Are bond ETFs the trade of 2023?

Fink added ETFs will be the major beneficiary of the “renewed income potential of bonds” which are becoming “increasingly relevant for the first time in years”.

“Fixed income ETFs will continue to grow, we believe this is the beginning of a major expansion of bond ETFs as a component of the entire bond market, we believe this is going to simplify investing, with more liquidity and cheaper products,” Fink continued.

“This is only the beginning. Every active bond investor is now using ETFs as a component of their exposures.”

He said bond investors can offer “greater precision” within their fixed income exposures via ETFs.

Rob Kapito, president of BlackRock added: “For the first time in 10 years, insurers and pension funds can earn attractive yields without duration or credit risk,” 

“A lot will come through ETFs, which currently represent 2.3% of the bond market in the US. We expect the industry to reach $15trn over the next few years. We have a lot of runway here.”

Fixed income ETFs in Europe have already seen high demand this year amid dampening inflation expectations and a negative outlook for the global economy.

According to data from Bloomberg Intelligence, bond ETFs recorded €2.8bn inflows in the first 10 days of 2023 as attractive yields drive investors to different corners of the asset class.

Despite its bullish stance on bond ETFs, BlackRock reported an 8% decline in profit for 2022 with Fink warning of a “substantial” impact of negative markets on earnings.

Last week, BlackRock said it axed 500 jobs – approximately 3% of the asset manager’s global workforce – following a turbulent market year for markets.

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