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BlackRock reports iShares fixed income ETFs surpass USD500bn in AUM

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BlackRock writes that the macroeconomic backdrop of historically low yields, a 40-year bull market in bonds that appears to be nearing its end, and surging inflation, is a recipe for headwinds for all types of debt investors.

“Yet market participants continue seeking exposure to the asset class through ETFs. In the US, iShares for the first time surpassed USD500 billion in AUM for bond ETFs, serving as a key milestone and testament to the evolved role fixed income serves in portfolios today,” the firm writes. 
“Here in Europe iShares fixed income adoption has reached over USD200 billion AUM (as at 19 Nov). This year alone iShares has experienced c. USD17 billion in flows (as at 19 Nov) into UCITS fixed income ETFs.”

Brett Olson, head of Fixed Income iShares in EMEA, reflects on the journey of fixed income and some of the driving forces behind these market moves to date, commenting that clients transitioning assets to sustainable versions of existing exposures is a key driver of adoption with c. USD4.95 billion net flows into UCITS ESG fixed income iShares in 2021 as at September end already surpassing 2020 equivalent net flows of USD4.51billion (for the full year). 

Looking at these flows, Olson notes: “Not only are we seeing clients transition as sustainable fixed income exposure become available, but they are also doing so in larger block sizes than historical fixed income investments indicating high conviction levels.

“Over the past several years, bond ETF adoption has accelerated dramatically – and to an even greater degree in 2020 – especially among institutional investors. What we’re witnessing is a dynamic of structural and cyclical usage.

“2021 has been a record year for inflation-linkers in EMEA iShares amid the persistent inflation worries experienced with total flows at USD2.6 billion YTD (as at October 2021, into UCITS iShares inflation linked ETFs) which is a substantial jump from the USD1.5 billion added in all of 2020. 

“Flows are being driven by products focused on the US, but we are seeing increased flows from eurozone exposures in recent months. In October the majority of inflation-linked flows went into products focused on eurozone(USD0.2 billion) – the third highest on record, a surprise after this exposure suffered outflows in 2020 (-USD0.1 billion). Buying in US inflation linkers followed with USD0.1 of flows.

“Lastly the search for yield, a trend we see continuing into 2022, continues to drive flows. Market participants, from retirement savers to institutional investors, continue to turn to bond ETFs not to just access fixed income exposure, but also to manage risk in dynamic market environments. We forecast Global Fixed Income ETF adoption to grow to USD2 trillion AUM by 2024 (currently at c. USD1.7 trillion AUM). Bond ETFs provide investors with the necessary toolkit to navigate today’s rapidly changing markets, which we believe can help them achieve better investment outcomes.”

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