The Growth Of Bond ETFs Is Staggering

Fixed income exchange traded funds are setting a torrid asset gathering pace this year and that trend isn't confined to the US.

New data from BlackRock Inc. BLK, the world's largest asset manager and parent company of iShares, the world's largest ETF issuer, indicate 2016 is the best year for bond ETF asset gathering since 2012 and that global bond ETFs have tripled in size over the past six years. In Europe, the second-largest ETF market after the US, bond ETFs had $150 billion in combined assets under management at the end of the third quarter with $100 billion of that allocated to iShares products, according to BlackRock.

This year, the iShares Core U.S. Aggregate Bond ETF AGG became the first fixed income ETF to top $40 billion in assets under management. AGG is now home to $41.7 billion in assets and only one U.S. ETF has added more new assets this year.

Related Link: Demand For Bond ETFs Seen As A Positive

Through the first half of 2016, about $40 billion flowed into bond ETFs, with approximately half of that total flowing into iShares products. In the third annual version of “Institutional Investors Embrace Bond ETFs,” according to recent study by BlackRock and Greenwich Associates.

With investors continuing to hunt for yield, corporate bond ETFs, such as the iShares iBoxx $ High Yield Corporate Bond ETF HYG and the iShares iBoxx $ Investment Grade Corporate Bond ETF LQD, are seeing increased activity. In fact, only three ETFs, including AGG, have added more new asset this year than LQD, the largest corporate bond ETF.

“Q3 saw the largest options trading day in 2016 for HYG. On 13 September, $2.3bn gross notional traded on HYG, compared with the average daily volume of $530m per day year to date in notional terms,” said BlackRock. “Investment grade corporate bond funds are on record year-to-date pace with $29.2bn. Surpassing the previous high of $24.7bn set last year.”

With liquidity being a primary concern among professional users of bond ETFs, a group that is growing by the day, it's reasonable to expect bigger bond ETFs will keep packing on the assets.

"Deeper liquidity in larger funds means greater flexibility: during periods of volatility or market stress, a larger fund - with more diversified shareholder base and active secondary market - provides investors with more potential trading partners to get into or out of a position,” adds BlackRock.