Key ETF Investment Trends

The most innovative changes in the fixed income ETF industry have arisen not from product providers, but from bond investors finding new ways that ETFs can help improve investment results. Some of the key reasons fixed income ETF usage is on the rise include:

ETFs are liquid capital markets tools

Investors have turned to ETFs to bridge the liquidity gap as bond markets have evolved.

Central bank policies and increased regulatory standards have changed the fixed income investment landscape. As a result, corporate bond market liquidity, as measured by both trading volumes and average trade size, has been declining. Post-financial crisis legislation has further led to a reduction in the amount of capital that traditional liquidity providers commit to supporting secondary bond trading.

  • Large, liquid, fixed income ETFs can be an ideal tool for institutional investors that require an additional source of liquidity when trading conditions in the bond market deteriorate.
  • When bond markets are stressed, fixed income ETFs effectively provide an additional trading venue—the exchange—where shares can be transferred among investors without needing to navigate an illiquid bond market.
  • In this way, holding an ETF in a bond portfolio can act as a liquidity shock absorber by providing an active and transparent trading vehicle when cash bonds cannot be easily transacted.
  • Many iShares Fixed Income ETFs have sufficiently long track records, assets, and liquidity to be used by institutional investors.

ETFs can help investors adapt to changing rate environments

Investors are using fixed income ETFs to tactically manage their portfolios

With global interest rates hovering around historic lows, many investors have become concerned about the impact of a prolonged rising rate cycle on their fixed income portfolios.

  • Investors are exploring ETFs as a flexible and simple way to dynamically adjust duration in their portfolios in a single trade.
  • iShares ETFs allow investors to select a precise mix of duration risk, yield potential, and credit quality to implement their investment views.
  • iShares offers a variety of short maturity ETFs including floating rate, multi-sector, corporate, government, and even interest rate hedged fixed income exposures.

ETFs unlock global fixed income opportunities

Investors are utilizing ETFs to trade bonds in foreign markets

ETFs democratize access to the world’s bond markets and can help break down the barriers investors face when investing internationally.

  • Adding international exposure through ETFs has the potential to increase yield without assuming high levels of duration, which would be associated with similar-yielding domestic bonds.
  • The inclusion of uncorrelated assets may reduce volatility and increase return potential for the overall portfolio.
  • iShares offers a variety of exposures including US and local currency, developed and emerging markets, and government and corporate bonds.

Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses, which may be obtained by visiting the iShares ETF and BlackRock Fund prospectus pages. Read the prospectus carefully before investing.

Investing involves risk, including possible loss of principal.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.

Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.

An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency and its return and yield will fluctuate with market conditions.

International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/ developing markets or in concentrations of single countries.

There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.

Buying and selling shares of ETFs will result in brokerage commissions.

Shares of the iShares Funds may be sold throughout the day on the exchange through any brokerage account. However, shares may only be redeemed directly from a Fund by Authorized Participants, in very large creation/redemption units.

When comparing stocks or bonds and iShares Funds, it should be remembered that management fees associated with fund investments, like iShares Funds, are not borne by investors in individual stocks or bonds.

Actively managed funds do not seek to replicate the performance of a specified index. Actively managed funds may have higher portfolio turnover than index funds.

The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).

The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Barclays, Bloomberg Finance L.P., Cohen & Steers Capital Management, Inc., European Public Real Estate Association (“EPRA® ”), FTSE International Limited (“FTSE”), India Index Services & Products Limited, Interactive Data, JPMorgan Chase & Co., Japan Exchange Group, MSCI Inc., Markit Indices Limited, Morningstar, Inc., The NASDAQ OMX Group, Inc., National Association of Real Estate Investment Trusts (“NAREIT”), New York Stock Exchange, Inc., Russell or S&P Dow Jones Indices LLC. None of these companies make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with the companies listed above.


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