High inflation and rising interest rates are expected to fuel further growth for bond ETFs, according to the firm.
BlackRock has forecast that the assets under management of global bond ETFs will reach US$5 trillion by 2030, up from US$1.7 trillion currently.
Bond ETF assets are expected to surpass US$2 trillion in 2023, 18 months earlier than previously predicted by BlackRock, following accelerated adoption during the pandemic.
The firm indicated that more wealth managers had put bond ETFs at the centre of their portfolios in the past two years with broader and deeper adoption among institutional investors.
“Bond ETFs have revolutionised fixed income investing as they provide instant access at transparent prices to hundreds of bond market exposures in ways that are accessible to all investors,” said BlackRock global head of ETF and index investments Salim Ramji.
“Bond ETFs have grown by proving to be useful and resilient investment tools during various market conditions including near-zero interest rates, pandemic-related market stresses and inflationary pressures. Bond ETFs have overcome many tests, and they have become the catalyst of a more modern, more digital and more transparent bond.”
Since the launch of the first bond ETFs by iShares in 2002, over 1,400 products have now been launched at an annual growth rate of 23 per cent.
However, bond ETFs still only account for 2 per cent of the US$124 trillion global fixed income asset class, having risen from a 0.3 per cent share 10 years ago.
“The global bond ETF industry is growing faster than we expected, propelled by self-reinforcing and enduring adoption trends from our clients during the pandemic era,” said BlackRock global head of product for ETF and index investments Carolyn Weinberg.
“We believe that the next wave of growth is just beginning. While much of this growth will come from increased adoption of existing products, we are excited for the innovations that incorporate more active management – which we believe will grow five times to $1 trillion in assets by 2030.”
Institutions have been among the fastest growing users of bond ETFs with adoption at all 10 of the biggest global asset managers as well as 10 central banks, according to a survey conducted by BlackRock.
Additionally, 95 per cent of public pensions surveyed in the first quarter of the year indicated that they were either increasing their usage of bond ETFs during recent volatility or were likely to increase their usage in the future.
This institutional demand, BlackRock said, was being driven by the desire for transparency, access, liquidity and portfolio efficiency.
The firm also highlighted a survey from Brown Brothers Harriman which suggested that 65 per cent of institutions globally had allocated more than 30 per cent of their portfolios to bond ETFs.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
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