Assets in bond ETFs, though, remain disproportionate to the underlying markets – bond ETFs make up less than 1% of the $94 trillion global debt market and only a quarter of the $2.6 trillion found in stock ETFs. BlackRock, though, argues that fixed-income funds are hitting a tipping point as the money manager projects bond ETF assets could expand to $2 trillion by 2025 as more accept the investment vehicle.
“Structurally, we are seeing a shift in adoption of using bond ETFs within portfolios, particularly institutional investors, asset managers and hedge funds,” Stephen Cohen, head of fixed income beta at BlackRock, told FT.
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Due to the underlying bond market’s notoriously illiquid nature, especially after banks, the traditional intermediary, cut inventories in face of increased regulations, large buyers and institutions have turned to more liquid bond ETFs as an alternative.
“Fixed income investors are becoming more comfortable with ETFs and [more are]using ETFs as a fixed income tool within their portfolios,” Cohen added.