BOND ETFs TURN 20

ALL SYSTEMS GO FOR $5 TRILLION

Four trends we believe will propel global bond ETF growth through 2030.

KEY TAKEAWAYS

Bond ETFs have become fundamental to fixed income investing and now represent nearly $2 trillion in assets under management (AUM).1 Where do bond ETFs go from here? We see four reasons why we believe investors will continue to adopt bond ETFs on the path to $5 trillion in AUM by 2030.2

Evolving 60/40 portfolios

Blending active and index strategies can help investors calibrate income, preserve capital, or diversify equity risk.

Seeking active returns

Institutions are turning to bond ETFs for their transparency, historically durable liquidity, efficiency, and increasingly granular access to fixed income exposures.

Catalyzing modern markets

Bond ETFs are reshaping fixed income market structure by helping to drive electronification, algorithmic bond pricing, and portfolio trading.³

Customizing portfolios

Newer bond ETFs break down asset classes into more precise exposures, providing investors new ways to specifically define outcomes of broad-based investment grade strategies or access diversified sources of potential yield.

EVOLVING 60/40 PORTFOLIOS

A FALSE DICHOTOMY

There’s increased recognition that there are advantages to blending index ETFs with actively managed strategies. Modern bond portfolio management includes multiple instruments to help gain efficient exposure and manage risk.

Barbell your bonds

Barbell your bonds

Anchoring a portfolio with bond ETFs

Simple “barbell” strategies consisting of broad index-tracking bond ETFs and actively managed fixed income mutual funds can help investors control risks at the portfolio level.

Navigating markets

Navigating markets

Fine-tuning your objectives

Adding or subtracting exposures through bond ETFs can help investors calibrate income, preserve capital, or diversify equity risk.

  

SEEKING ACTIVE RETURNS

INSTITUTIONS PROPEL GROWTH

Scores of institutional clients bought bond ETFs for the first time in 2020, and they have been finding new ways to use them ever since.4

Enter the institutions

Enter the institutions

Bond ETFs offer an alternative

Active managers are increasingly using bond ETFs as risk management alternatives alongside futures or swaps, as cash and liquidity management instruments, and as tools for large-scale portfolio transitions.

Rule changes spur growth

Rule changes spur growth

Meeting objectives with bond ETFs

Evolving regulation, for example amendments to grant certain bond ETFs a risk-based capital classification similar to that of individual bonds, may provide fresh avenues of growth.

  

CATALYZING MODERN MARKETS

A NEW PARADIGM

Bond ETF adoption has spurred advances in electronic trading and pricing that have helped modernize how investors interact in fixed income markets.

ETFs as modernizers

Modernizing fixed income markets

Challenge sparks innovation

Mainstream adoption of bond ETFs took off amid the 2008-2009 global financial crisis as investors turned to them as alternatives to increasingly hard-to-trade individual bonds.

The rise of baskets

How baskets changed trading

A new architecture for markets

Demand for bond ETFs have helped drive advances in electronic trading and algorithmic pricing, which together have improved transparency and liquidity.

  

CUSTOMIZING PORTFOLIOS

BOND ETFs: THE NEXT GENERATION

Newer bond ETFs are slicing the fixed income marketplace into ever more granular exposures that can be blended into highly customizable portfolios.

The Next Generation

Bond ETFs: The Next Generation

A long runway ahead

The next generation of ETF innovation is just beginning. New strategies will finally allow investors think of portfolios not as lists of bonds, but as collections of risk that can be disaggregated and reassembled based on evolving market conditions, investment objectives, and risk preferences.

The bond ETF toolkit

The bond ETF toolkit

Be your own architect

Newer bond ETFs break down asset classes into more precise exposures across credit, sectors, durations, sustainability and other risk factors. This granularity allows investors to redefine what they want their market exposures to be.

  

CONCLUSION

CONCLUSION

Bond ETFs revolutionized the way people invest in fixed income. Twenty years ago, it would have been difficult if not impossible to buy or sell thousands of bonds in a single trade at a transparent price — exactly what bond ETFs have empowered investors to do. Bond ETFs have brought transparency, access, liquidity, and efficiency to millions of fixed income investors.


Like many technologies, the adoption of bond ETFs has been accelerated by the dynamics of the pandemic, which exposed longstanding inefficiencies in fixed income markets. Bond ETF growth persists even in the face of mounting inflation and hawkish central banks around the world. We are upgrading our projections for global bond ETF AUM, predicting that the size of the industry will nearly triple and reach $5 trillion by the end of this decade.

iSHARES BOND ETFs

Strategies to potentially hedge risks and capture opportunities.

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