Average daily trading in BlackRock’s largest investment-grade corporate debt fund, LQD, has grown to $526 million this year, while total return swaps on the underlying index have risen to $38 million over the same period. That’s still far below the $17.5 billion of daily turnover in individual securities, but the alternatives are growing more rapidly, according to BlackRock’s report.
Still, some aren’t convinced that ETFs are the answer, either because they see more opportunities away from benchmarking or are uncertain about whether passive products like most ETFs will work during difficult periods. And others, like Gene Tannuzzo, who manages three funds including an ETF for Columbia Threadneedle Investments, just don’t like paying fees to a rival.
“We’re more likely to use a little bit of CDX than to use an ETF,” he said of CDS indexes. “You can justify it either way, but where we’ve come down is it’s a little bit harder to justify having a separate asset manager’s name in your portfolio.”
BlackRock’s unfazed by all of this.
The firm already manages $284 billion in debt ETFs, almost half the U.S. market, and expects the asset class to grow to $1.5 trillion globally over the next five years. Trading doesn’t beget inflows, and vice versa, but the two are highly correlated. To BlackRock, capturing a substantial part of that growth is the key to the future.
Investors that want to trade “will gravitate to the venue and the format where it’s most efficiently priced to trade,” said Steve Laipply, head of fixed-income strategy for BlackRock’s U.S. ETF business. “That could be in single security form, it could be in derivative form, it could be in ETF form. We see the fluidity between those venues increasing over time.”
This article was provided by Bloomberg News.