BondBloxx Co-Founder Discusses Institutional Investors’ Need for Precise Fixed Income Exposure

A team of financial market veterans announced in October the launch of BondBloxx Investment Management, the first ETF issuer solely focused on the needs of fixed income investors. BondBloxx co-founder Joanna Gallegos spoke with ETF Trends about what BondBloxx does, how institutional investors use ETFs differently than retail investors, and how ETF usage among institutions is growing.

Prior to co-founding BondBloxx, Gallegos was the head of global ETF strategy at JPMorgan Asset Management and the head of ETF product management at BlackRock’s iShares.

ETF Trends: Tell me about BondBloxx and what you do.

Joanna Gallegos: BondBloxx is unique in that it’s the first ETF issuer that’s 100% focused on fixed income. Our focus is on building precise exposures for institutional investors that want to execute specific investment views and have additional tools to manage risk.

BondBloxx was launched in October 2021 by Leland Clemons [the former head of fixed income and derivatives, Tradeweb Europe; global head of markets and investment strategy at BlackRock’s iShares]. I’ve worked closely with Leland during our years at iShares and was really excited about the team that he brought together — all extremely innovative, talented professionals across the industry that had experience building the first fixed income ETFs. [The team includes former executives from BlackRock, State Street Global Advisors, and JPMorgan.]

Since October, we’ve gone effective with seven high-yield sector funds and have been blown away by the interest we’ve received from investors as we prepare to launch.

ETF Trends: What made you decide to target institutional investors? 

Joanna Gallegos: There’s a profound gap between the size of the bond market and the sophistication of available tools, like ETFs. Institutions are looking for products that give them precise exposure, but they’ve really been limited in what they can do since these types of tools are underrepresented in the ETF landscape. Most fixed income products in the market are broad based.

And if you combine that with recent innovations in the fixed income market, including data and technology, we think this provides a lot of opportunities to launch very targeted fixed income products with the precise tools that institutional investors are looking for.

ETF Trends: How does institutional usage of ETFs differ from retail usage?  

Joanna Gallegos: The amazing thing about ETFs is that everyone can benefit from their advantages — from transparency to tax efficiency and the ability to provide liquidity at a low cost. And all those advantages are universal to everybody.

The way institutional investors differ from retail investors is in their specificity of use. An institutional investor is probably more looking to implement very specific ideas or specific risk characteristics, and they need tools that aren’t currently out there.

For a long time, these investors have been hungry for a broader range of fixed income solutions like portfolio trading, baskets, and ETFs. They’ve been stuck and are currently using blunt tools (broad exposures) or are investing the time and resources to source individual bonds.

In addition to using ETFs as an efficient portfolio construction tool, institutional investors can take that approach another step further, using ETFs as a tool to execute highly specific strategies, balance their portfolios, and manage risk.

ETF Trends: Are you seeing an increase in interest in ETFs from institutional investors? 

Joanna Gallegos: Yes. Institutional usage of fixed income ETS is rapidly accelerating, and that growth is expected to continue in coming years.

Much of that growth is driven by new users and new uses — more institutional investors are coming to ETFs. We think pensions and insurance companies are increasing their use of ETFs for their efficiencies in building their portfolios.

We’re focused on the fixed income buyer, the institutional buyer. We see potential for a tremendous amount of growth here. Also, there’s a lack of product. So, it’s really about these two factors coming together — first, there’s more and more interest in the ETFs that are already out there, and second, we’re seeing more and more ETFs designed to meet investors’ specific needs. And we’re excited to be developing these kinds of products that are really tailored to the needs of the investors and the market.

For more news, information, and strategy, visit the Institutional Income Strategies Channel.