Strong demand for fixed income ETFs

iShares, the Exchange Traded Funds (ETF) platform of BlackRock, Inc. (NYSE: BLK) revealed that its range of European-domiciled fixed income ETFs has surpassed $25 billion in assets under management (AUM).

iShares' 40 fixed income funds account for nearly 50 per cent of total assets in European fixed ETFs and reflect the market leading position the provider has in the asset class. Assets in iShares fixed income range have grown at a rate of 44% per year over the last two years, demonstrating that investors are recognising the liquidity, diversification and transparency that iShares fixed income ETFs offer.

In the first half of 2010, asset flows into fixed income ETFs led the European market, accounting for nearly 23% of all inflows.

The popularity of corporate bonds in 2009 continued into 2010. The largest fixed income ETF in Europe is the iShares Markit iBoxx Euro Corporate Bond, which offers exposure to the largest and most liquid Euro denominated corporate bonds and has $4.5 billion in assets.

Interest in emerging market bonds has been strong over the last six months, with inflows of $500 million into the iShares JPMorgan $ Emerging Market Bond Fund this year. Corporate and emerging market bonds have offered relatively high yields in a generally low yield environment, and investors have used these sector ETFs to participate from the risk premium over government bonds.

There have also been significant inflows into government bond funds this year. Investors have increasingly used ETFs to manage sovereign credit risk, with strong flows into German government bond-related ETFs as investors differentiated between Eurozone regions. In terms of broader exposure, the focus has been on short-term government bonds rather than those with longer-dated maturities.

Inflation-linked ETFs remain a tactical choice for investors, allowing them to manage risk in this important area of the market across Eurozone, UK, US and globally.

Commenting, Alex Claringbull, Senior Portfolio Manager at BlackRock said: "In early 2008, iShares predicted that global assets in fixed income ETFs would grow by over 200% to surpass $200 billion by 2011. The industry is well on course to meet this forecast, with AUM in fixed income ETFs globally standing at $189.9 billion.

"iShares' range of products in the fixed income space and its breadth of coverage is unparalleled, and is one of the reasons we have captured approximately 70% of net new assets flowing into European fixed income ETFs in 2010. We have also been able to draw on BlackRock's intimate knowledge and deep expertise in fixed income markets and bond trading, including the expertise of over 400 fixed income investment professionals worldwide and the sophisticated proprietary risk management systems and tools of BlackRock Solutions. Our aim is to continue to broaden iShares' coverage of new areas within the fixed income world in the near future."