Bond ETFs To Hit $2 Trillion In Five Years, BlackRock Says

On the back of first half of inflows of $72 billion, global fixed income exchange traded funds topped $1 trillion in combined assets under management earlier this month and BlackRock Inc. BLK sees that number surging to $2 trillion in just five years. BlackRock is the parent company of iShares, the world's largest ETF sponsor.

What Happened

Over the past several years, bond ETFs have been ascending the ranks of the ETF world as more professional investors adopt the products for a variety of reasons. Some institutional investors have turned to corporate bond ETFs over individual issues as their preferred avenues for exposure to corporate bonds, both investment-grade and high-yield.

The largest bond ETF in the U.S. is the $63.74 billion iShares Core U.S. Aggregate Bond ETF AGG, the eighth-largest ETF overall. Of the 100 largest U.S.-listed ETFs, nearly a quarter are bond funds. Of those 24 ETFs, 14 are iShares funds.

Why It's Important

“Global bond ETFs are currently growing 20% annually, and they still only represent less than 1% of the $105 trillion global fixed income marketplace,” said Carolyn Weinberg, iShares Global Head of Product. “Future growth will be driven by an increasing number of investors using bond ETFs in more ways.”

Other behemoth bond ETFs include the $36.89 billion iShares iBoxx $ Investment Grade Corporate Bond ETF LQD and the $17.37 billion iShares iBoxx $ High Yield Corporate Bond ETF HYG.

“Bond ETFs are not only a product, but a technology,” said Weinberg. “Bond ETFs have transformed how all investors - from individuals to wealth managers to institutions - can access fixed income efficiently and transparently.”

What's Next

This year, four of the top 10 ETFs in terms new assets added are bond funds, a quartet including the $14.39 billion iShares 20+ Year Treasury Bond ETF TLT. With the Federal Reserve poised to keep rates lower or lower borrowing costs and the European Central Bank keeping an easy monetary policy, global bond ETFs could see even larger flows this year.

It's likely the move to bond ETFs will be accompanied by fee compression or the introduction of “me too” products with lower fees to compliment funds like HYG and LQD. Most iShares bond ETF fees are just 25% of the fees on competing active mutual funds.

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