Fixed income ETF assets to surge, as iShares, Vanguard, Pimco and SSgA battle it out

Jul 11th, 2012 | By | Category: Fixed Income

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The global market for fixed income ETFs will likely grow to more than $2 trillion in assets over the next decade, compared with $302 billion today, according to a new analysis released by BlackRock. Over the same period, the US fixed income ETF category will likely grow to $1.4 trillion in assets, compared with $222 billion today, BlackRock projects.

Fixed income ETF assets to surge, as iShares, Vanguard, Pimco and SSgA battle it out

Bill Gross, Pimco co-founder and manager of the fast-growing actively managed Pimco Total Return ETF (BOND).

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 the firm’s analysis.

“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,” said Jennifer Grancio, Head of iShares Global Business Development at BlackRock. “Yet even after a decade of continuous growth, fixed income ETFs are still just scratching the surface of their potential.”

During 2012’s first half, fixed income exchange traded products (ETPs) attracted $40.8 billion 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.

“When iShares launched the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) in July 2002, it forever changed the way investors could access the bond markets – on an exchange, with clarity of pricing and observable liquidity,” said Matthew Tucker, Head of iShares Fixed Income Investment Strategy at BlackRock. “As fixed income ETFs continue to be more fully embraced by individuals, advisors and financial institutions, they will solidify their standing as an essential fixed income capital market instrument, in a truly evolutionary step for the market.”

The top five ETFs, in terms of assets under management, within the fixed income category are the iShares Barclays TIPS Bond ETF (TIP) with a fraction over $23.0bn, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) with a little under $23.0bn, the Vanguard Barclays Total Bond ETF (BND) with $17.4bn, the iShares Barclays Aggregate Bond ETF (AGG) with $15.4bn, and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) with $14.9bn.

Currently much smaller, but worthy of a mention, is the fast-growing actively managed Pimco Total Return ETF (BOND) from Pimco with $1.9bn. Managed by Pimco co-founder Bill Gross (pictured above), the Pimco Total Return ETF launched on February 29 this year and has rapidly accumulated assets. The fund is seen by many as a bellwether for the active ETF model. [See Bill Gross’s Pimco Total Return ETF set to be ‘bellwether’ active ETF]

One noticeable absentee from the list above is SSgA SPDR. While SSgA’s flagship equity and gold products, the SPDR S&P 500 ETF (SPY) and the SPDR Gold Trust (GLD) respectively, are the world’s two largest ETFs, the firm has not been quite so successful in the fixed income space. That said, its SPDR Barclays Capital High Yield Bond ETF (JNK) is sixth on the list with $10.9bn in assets. [See High-yield bond inflows reinforced by ETF growth]

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