Bond ETFs to potentially cross $2trn mark by 2024

On the 07/04/19 at 7:22AM


Tuba Raqshan

A global asset allocation portfolio, efficient market access, modern bond market and innovation can propel global bond ETFs to cross the $2trn threshold by 2024, cited the latest study by BlackRock.

Global bond ETF assets reached $1trn in June 2019, a key milestone mapping the progress made over the last 17 years. BlackRock’s latest report expects this pace to increase due to increasing practice by institutional and wealth managers to move from a binary to a global portfolio, focussing first on expected results and then on asset allocation, finally finding the most effective way towards implementation.

An increase in cost of capital since 2008 is motivating institutional investors (pension funds, asset managers and insurance companies) to use bond ETFs for fast and efficient market access. This, coupled with innovation in new bond ETF exposures, with customisation tools, are increasing the popularity of this asset class.

The modernising bond market is another factor where bond trading, expressed as a percentage of outstanding debt, has declined in the post-crisis world, focused on distributors, and market participants are relying more on ETFs and e-commerce to improve liquidity.

Commenting on this trend, Rob Kapito, president of BlackRock, said that ETFs can be a game-changer. “Having spent more than 35 years in the bond business, I consider ETFs to be a key technology that changes the game, because of the way they bring transparency and ease to a historically difficult to access asset class. Their simple format - an ETF is bought and sold on the stock exchange - allows investors to manage diversified bond portfolios easily and efficiently. Today, bond ETFs offer a wide variety of exposures and good competitiveness. All these advantages will help to accelerate the bond ETF market. All investors will benefit from this,” he added.

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