Global fixed income ETF market to exceed $2trn, says iShares

The global market for fixed income ETFs could grow to more than $2trn in assets over the next decade, compared with $302bn today, according to a new market analysis released by iShares, the ETF business of BlackRock.

Over the same period, the US fixed income ETF category will likely grow to $1.4trn in assets, with EMEA and Asia taking the remaining $600bn in assets.

“Global market growth will be driven by the impact of changing demographics as more investors seek income producing investments, the ongoing evolution of the global bond markets and the discovery of fixed income ETFs by a widening investor universe”, according to iShares’ analysis.

Jennifer Grancio, head of iShares global business development at BlackRock, said: “The dynamic forces driving the long-term expansion of the fixed income ETF market have been especially evident this year, with the market attracting some of its strongest asset flows to date. Yet even after a decade of continuous growth, fixed income ETFs are still just scratching the surface of their potential.” 

In the first half of 2012, fixed income exchange traded products (ETPs) attracted $40.8bn in net new assets, with flows into the products accounting for 40% of all global ETP inflows, according to BlackRock’s latest ETP Landscape Report.

Alex Claringbull, senior fixed income portfolio manager for iShares EMEA, said: “In today’s new world of investing, fixed income is no longer the same asset class it once was. iShares sees investors are increasingly diversifying their holdings by issuer and sector, credit quality, region and currency in an effort to secure new sources of income and to spread risk.

“Indexed investments and iShares ETFs in particular are gaining significant traction in this context. ETFs started out offering access to equities, but there is increasing recognition that they are equally effective tools for fixed income investors who want to access new markets or implement active allocation decisions in an efficient and precise way using low cost, passive ETFs.

“Many investors are finding that fixed income iShares can improve the risk/return profile of their portfolios, and enable them to invest in markets outside their core capabilities. Specialist fixed income managers can employ ETFs as an alternative to holding cash. For smaller professional investors, fixed income ETFs offer a way of investing in a market that can otherwise be challenging to access. Many bonds have high minimum investment criteria, which makes building and maintaining a diversified portfolio expensive and logistically demanding.”

iShares’ analysis and projections for the global fixed income ETF market are contained in the paper, “Transforming the Bond Markets with Fixed Income ETFs.”

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