By Johanna Bennett
Are bond ETFs going to be the next big thing in the ETF universe?
The fixed income market has been a loser, and appears to be only getting worse amid fears of bond-eroding interest rate hikes and inflation.
But big banks are ramping up competition in the bond ETF space. J.P. Morgan (JPM) recently announced plans to launch at least six bond ETFs next year, a move that will pit it even more firmly against rivals such as Goldman Sachs (GS). Both firms have one bond ETF each, while BlackRock (BLK) has more than 200.
And at ETF.com, contributor Matt Hougan opines that despite a potential bear market in returns, fixed-income ETFs could be the fastest growing corner of the fixed-income market over the next three years. “In fact, I think we will look back on 2017 as the year of fixed-income ETFs,’ “ he writes.
Fixed-income ETFs were late to the market, first appearing in 2002, nearly 10 years after the first equity ETF launched. Partially as a result, they are still a small fraction of the market: As of Nov. 30, 2016, fixed-income ETFs held $445 billion in assets in the U.S., compared with $2.5 trillion for ETFs as a whole.
But given the transformational nature of what fixed-income ETFs can do for the market, my guess is they’ll be the fastest-growing asset class in 2017 and beyond.
The benchmark for bond funds is the Bloomberg Barclays US Aggregate Bond Index. The largest ETF tracking the index is the iShares Core U.S. Aggregate Bond ETF (AGG) with $42 billion in assets