BlackRock Inc. expects the global bond exchange-traded fund (ETF) assets to jump from US$1.3 trillion as of end-June to at least $2 trillion by 2024, partly from greater adoption by Asian institutional investors looking for cost-effective products that can meet their investment objectives, according to Darren Wills, Asia Pacific head of fixed income iShares and institutional index at the world’s largest asset manager.
He says the company’s global bond ETFs attracted 60 first-time institutional buyers in the first half of 2020, including 18 from Asia who poured in $600 million.
“In fact, [BlackRock’s] global fixed income ETFs assets have grown by 20% over the past five years; recently the trend has been accelerated with a 30% growth over the past 12 months. Asia’s growth figures are higher than what we’re seeing globally both on fixed income ETFs’ adoption and first-time usage,” Mr. Wills says in a phone interview with Asia Asset Management.
Key reasons that he cites for the rising interest in these funds include diversification benefits at lower cost, transparency and liquidity, and their ability to function as rapid and efficient tactical asset allocation tools.
“In the recent volatile market due to the coronavirus pandemic, institutional investors are finding it hard to navigate the underlying bond market. So, they are turning to bond ETFs for real-time price discovery when transparent quotations and liquidity had sharply deteriorated in individual bonds,” he says. “Investors like the transparency and liquidity that bond ETFs can offer, and they are efficient and effective tools for rebalancing holdings, hedging portfolios and managing risk.”
He also points to educational efforts by BlackRock and its peers.
“So, the efforts we put in to educate the market is yielding results. Today, the first time [bond ETF] users we are attracting include pension funds, large multinational insurers and asset managers,” he says.
Meanwhile, demand for environmental, social and governance (ESG)-themed ETFs is growing as investors seek to manage their sustainability risks, Sunita Subramoniam, BlackRock’s head of sustainable ETF and index investments for Asia Pacific, says in an interview.
She says iShares offers more than 100 sustainable ETFs globally, and a wide range of funds that undergo extensive environmental screening on mining and reserves of fossil fuel and power generation.
“Many of our strategies include explicit carbon reduction targets into portfolio design and have delivered 30%-70% reduction in emission intensity relative to traditional benchmarks,” she says.
BlackRock had $7.32 trillion of assets under management as of end-June 2020. Its iShares unit is the largest ETFs issuer in the world with $2.16 trillion of ETF assets under management.