2019 will mark another big year for ETFs and 2020 could be even bigger with new innovations hitting the industry like an ETF Hub, which was developed by global investment firm BlackRock and NYSE owner Intercontinental Exchange (ICE).
Per a CNBC report, the ETF Hub will incorporate “processes to streamline ETF order entries, consolidate issuer data and provide the analytic tools needed while also facilitating fixed income ETF trading.” What spurred its development was the rising demand for bond ETFs.
“What’s happening is, as lots of asset managers seek to meet the demand of investors to participate in bond ETFs, they’re creating a bunch of, you can think of it as local access roads to create and redeem bond ETFs,” said BlackRock’s Samara Cohen, co-head of iShares Markets and Investments at Blackrock, on an episode of CNBC’s “ETF Edge.” “What the Hub is doing — and it’s really a market utility that has never existed before — is creating a highway to facilitate the manufacturing process for bond ETFs,”
“The demand for bond ETFs has really forced the electronification of the bond market because you can’t trade a big portfolio, and some of these ETFs have thousands of bonds,” she added. “You can’t trade that by voice or over the phone, so you need electronic systems and that has facilitated a huge change in the bond market, broadly.”
The technology comes at a time when ETFs are making records in terms of attracting capital, according to the ICE ETF Hub website. The hub will not only benefit bond ETFs, but equity ETFs as well.
“The U.S. ETF market has seen tremendous growth. According to the Investment Company Institute, net assets grew six-fold over the last decade to $3.4 trillion,” the site noted. “As assets and trade volumes have accelerated, so has the need for solutions that drive further efficiencies in the primary markets. The new ICE ETF Hub will provide standards to simplify the creation & redemption process across equity and fixed income ETFs.”
In addition to the increased interest in bond ETFs, Cohen also credits environmental, social and governance (ESG) initiatives as a prime driver for the ETF hub. ESG is something that has been making headway in Europe and now the U.S. is starting to follow suit.
“There’s been a real desire by investors in the U.S., [and that interest]has been there longer in Europe, to combine their investing with their beliefs, and investors are becoming educated in what that means for them,” she said.
For more market trends, visit ETF Trends.