Global bond exchange-traded funds (ETFs), though operating in the most challenging fixed-income market in decades, will triple their assets under management to US$5 trillion by 2030, according to BlackRock.
The extreme market volatility in the early days of the pandemic reinforced the versatility of bond ETFs, the world’s largest asset manager says in a new paper, All Systems Go, published on May 19. As a result, over the past two years more wealth managers have put bond ETFs at the centre of their portfolios and institutional adoption of bond ETFs has broadened and deepened.
“Bond ETFs have revolutionized fixed-income investing as they provide instant access at transparent prices to hundreds of bond market exposures in ways that are accessible to all investors,” notes Salim Ramji, global head of ETF and index investments at BlackRock. “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.”
Bond ETFs, which BlackRock pioneered 20 years ago, have grown 23% annually into a US$1.7 trillion industry with more than 1,400 products. Despite this growth, bond ETFs comprise just 2% of the US$124 trillion fixed-income asset class.
Darren Wills, head of APAC iShares fixed income and institutional index, says investors in Asia-Pacific continue to adopt bond ETFs as they provide transparent, liquid, and precise access to global fixed-income markets. “Ongoing innovation that incorporates sustainability alongside new exposures to local fixed-income markets is set to accelerate that trend,” he notes. “ETFs currently account for just 0.5% of the total APAC bond market – and we believe the region has a major role to play in driving growth of global bond ETF assets.”
BlackRock identifies four factors that it believes will help drive further adoption of bond ETFs. These are: