iShares expects AUM in fixed income ETFs to grow 200%

iShares, the Exchange Traded Fund (ETF) arm of Barclays Global Investors, expects to see assets in fixed income ETFs to grow by over 200 per cent to surpass $200 billion over the next three years, as capital market banks look to start trading the products more widely.

Globally, fixed income ETFs have over $60 billion in assets under management, a 7.5 per cent share of the total ETF market. Assets in fixed income ETFs have grown by 230 per cent from $18 billion in June 2005 to over $60 billion as at the end of January 2008. ETF assets across all asset classes are expected to balloon from $800 billion currently to exceed $2 trillion by 2011.

Commenting, Alex Claringbull, Fixed Income Portfolio Manager, iShares said: “ETFs have traditionally been thought of as equity products, and the majority of the effort in developing and promoting ETFs has been in relation to equities. However, fixed income ETFs are gaining increasing acceptance amongst investors as they become educated about the convenience and transparency of ETFs. We are also seeing ETF providers placing increased emphasis on creating innovative fixed income ETFs, such as the new iShares $ Emerging Markets Bond Fund."

“The fixed income ETF market is still in its infancy, and the majority of fixed income investors still trade with the large fixed income capital market banks. However, as the size of the ETF market grows, banks will start bringing fixed income ETFs more to the attention of clients, which will have a major effect on the growth of the market generally, and fixed income ETFs specifically.”

“The reality is that many banks have not really defined the best way to trade fixed income ETFs; they’re not sure whether they should be traded on equity trading desks, or whether they should be traded by fixed income houses.”

“The solution is likely to be two-fold with bond houses helping equity desks to source underlying liquidity in ETFs and equity desks actively trading the liquidity. As this occurs, we’re likely to see more banks look to leverage the liquidity and transparency that ETFs provide to investors, and consequently invest more extensively in fixed income ETF products.”