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Appetite for fixed income exposure through ETPs increases, says BlackRock


According to the latest “ETF Landscape” report from the BlackRock Investment Institute, fixed income ETPs have seen a surge of interest so far this year, as investors are increasingly choosing an indexed approach to fixed income investing.

During November, ETP investors also displayed a continued preference for gold, which is known to be a safe haven asset. However announcements concerning a globally coordinated central bank liquidity operation brought attention back to risk assets at the end of the month.
The report shows that the global ETP marketplace had assets under management of USD1.543 trillion as at the end of November 2011, an increase of USD61bn or 4.1% on a year to date basis. The total number of ETPs increased slightly to 4,200 from 4,152 at the end of October.
The global exchange traded products industry experienced outflows of USD0.6bn in November compared with October figures. The European debt crisis, as well as the failure of US legislators to devise a long-term deficit reduction proposal, has prompted many investors to adopt a ‘wait and see’ approach and to focus on re-allocating assets rather than committing new money.
Fixed income ETPs have gathered USD43.6bn, or 31.6%, of all assets flowing into the ETP industry so far this year, as investors are increasingly choosing ETPs to access global fixed income markets. November saw a continuation of this trend, with fixed income ETPs gaining USD3.7 billion in net new assets.
Furthermore, globally ETPs accounted for 33% of all new money that flowed into all bond funds during the first three quarters of 2011. In 2009 and 2010 by comparison, ETPs accounted for 11% and 10% of assets flowing into bond strategies respectively. This gain in market share by ETPs has been driven by the increased popularity of fixed income indexing, as well as a trend with investors and advisors towards exercising more control over their fixed income investments through ETPs. By contrast, actively managed bond funds have seen inflows for the first three quarters of 2011 drop to USD70 billion from USD200 billion in the first three quarters of 2010.
“In the current and extended low-yield environment, ETPs are attracting huge interest from fixed income investors who are eager to maximise yield and manage their costs,” commented Kevin Feldman (pictured), Managing Director at BlackRock. “This is a truly revolutionary development, signalling that an indexed approach to fixed income investing is becoming as commonplace and as valued as an indexed approach is in the equities space.”
“In turn, the number of fixed income ETPs on offer has mushroomed from 122 in 2007 to 591 today, with more than 110 launched this year alone, and this growth in product range is likely to continue. Providers will be looking at ways they can offer both broad and niche exposures to global bond markets, and this will allow investors to implement customised fixed income asset allocations that mix sectors, geographies, and risk profiles much as they do today for equities.”
Commodity ETPs gathered the most global assets of any category during November 2011, with investors strongly favouring gold. Gold ETPs attracted USD4.8 billion, making November the sixth consecutive month that gold has attracted net new assets. Gold ETPs have gathered USD12.1 billion so far this year, far outpacing all other commodity categories, which have collectively seen net outflows of USD1.7 billion.
“Price volatility in global commodity markets has not dampened the market’s enthusiasm for gold, particularly among both central banks and ETP investors,” says Feldman. "Ongoing speculation about significant future global monetary easing has been favourable for the commodity, as investors recognise that central banks have the capability to expand the global money supply rapidly, and gold provides a potential hedge for this scenario.”


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