Fixed income ETFs are transforming the way portfolio managers construct bond portfolios and manage risk.

Fixed income ETFs provide three key benefits that can potentially improve bond portfolio management over the long term: 1) liquidity enhancement, 2) low trading costs, and 3) flexibility. See how your institutional peers leveraged these benefits in 2020 and their plans for managing volatility in the coming years in Institutional Investor's latest research report.

Video 4:10


At our iShares Fixed Income Leaders Circle virtual event, Rob Kapito and Rick Rieder share their market outlook and investment implementation ideas.

LARRY FINK: Even at the most difficult times when we had one directional actions in most cases, and I'm talking about the second and third week of March, markets operated quite successfully…
….And I do believe that it was through the technology of ETFs and the foundation of what ETFs are providing, especially in the fixed income arena, has really allowed markets to operate more efficiently with a lot more liquidity.

RICK REIDER: Listen. I think it’s the most exciting period for investing and being in markets that anybody I’ve ever ... been doing this 35 years just because you’re – I mean we’re looking at new companies every day, new forms of business, new forms of how you utilize data.

ROB KAPITO: The world is swimming in cash. Many investors moved to cash at the beginning of COVID or due to various policies now have more cash savings than they did before. Global liquidity injections have shattered all previous records in response to the pandemic and this liquidity is fuel for both the real and financial economy. Add to that the fact that there is $18.3 trillion in negative yielding debt and less assets to buy and this landscape is resulting in historic demand for investment opportunities.

NARRATOR VO: In June of 2019, we proposed that global bond ETF assets would more than double in five years to $2 trillion. Since that time, growth has continued to accelerate, particularly during the market volatility of early 2020. As of March 31, 2021, global bond ETF assets currently stand at over $1.4 trillion. The modernization of the bond market continues to accelerate, as ETFs are increasingly integral in portfolio construction decisions by institutional investors.

DEL STAFFORD: Clients are faced with the prospect of lower rates for longer, compounded by high levels of cash. Whether we're speaking with a multi-asset portfolio manager where the category average is nearly 5% or within property casualty insurers, over the last three years the category average has exceeded 6% cash.

ISEULT CONLIN: The usage of a wide range of products in your portfolio that you may have not otherwise done or invested in, say five to ten years ago. So, I'm thinking, you know, in addition to sort of, you know, plain vanilla cash bonds, of course fixed income ETFs, TRS, and CDX. But in general, I think that evolution of utilizing more products in your portfolio construction is sort of here to stay and going to continue over the next few years.

ROB KAPITO: Bond ETFs are transforming the way fixed income portfolio managers construct bond portfolios and manage risk. And institutional clients, from pension funds to active managers, have recognized the versatility and resilience of fixed income ETFs and are accelerating adoption.

NARRATOR VO: To learn more, financial professionals and institutional investors can watch replays of iShares Fixed Income Leaders Circle: Shifting the Course on Bond Portfolios and explore resources from our partners.

I trade a lot of credit ETFs. And I think during this COVID event, you saw some really significant tests of the durability of those assets. The ability to use a whole suite[…]and then get liquidity in these markets, particularly with things like credit.

Rick Rieder
BlackRock's Chief Investment Officer of Global Fixed Income

Portfolio construction expertise for today's evolving bond market

Ongoing changes in bond trading protocols and technology should continue to have profound implications for bond markets, investors, and portfolio construction. Request a consultation with the iShares Portfolio Consulting team to discuss how these changes may impact your portfolio.
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