4 TRENDS DRIVING ETF GROWTH

Exchange traded funds (ETFs) have come a long way since the first U.S. product launched in 1993. Deep dive into 4 key trends that are likely to drive ETF growth in the years ahead.

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WHAT’S DRIVING THIS GROWTH?

Four trends are likely to fuel future ETF growth:

  1. The rise of bond ETFs
  2. Indexing is active
  3. ETFs unlock access to both active and index investing
  4. ETFs are preferred by digital wealth investors

THE RISE OF BOND ETFs

ETFs began with equities in the early 1990s. Fixed income ETFs were developed later and have recently hit an inflection point and are now growing rapidly. It took only 22 years for global bond ETFs to hit US$2.6 trillion in assets in 2024.1

Fuelled by four powerful bond ETF growth trends, BlackRock predicts global bond ETF assets under management (AUM) will reach US$6 trillion by the end of 2030.2

  1. Key role in evolution of portfolio construction
  2. Catalysts for modernizing bond markets
  3. Tools for seeking active returns
  4. Increasingly precise sources of potential returns

INDEXING IS ACTIVE

The active versus passive debate is over as investors increasingly recognize that ETFs are useful building blocks when constructing alpha-seeking portfolios.

There have been three stages of the evolution of how index products are used to construct portfolios. In the first stage, investors didn’t distinguish between alpha and beta. They used active managers for both alpha and beta. In the second stage, investors used active strategies for alpha and index strategies for beta. Finally, in the third stage, investors are now starting to use index strategies for both alpha and beta.

ETFs UNLOCK ACCESS TO BOTH ACTIVE AND INDEX INVESTING

Investors historically had to trade-off between investment quality and cost, but ETF technology has upended all that. iShares ETFs enable all investors – institutions and individuals – to access more markets in more ways, while benefitting from ETFs’ low fees and tax efficiency. Similar to other technologies, quality and selection have increased as overall costs have come down.3 ETFs are no longer just index-based and BlackRock offers active, swap-based, and options-enhanced strategies among others. Today, investors can access 1,600 iShares ETFs globally – a 50% increase since 2019 – including the following4:

  • Core ETFs that are cost-efficient for building long-term portfolios
  • Bond ETFs that investors use to access bond markets more efficiently
  • Active ETFs that aim to generate enhanced income or downside protection, using options
  • Factor ETFs that have the potential to outperform market-cap benchmarks
  • Precision ETFs that enable access to an array of countries, sectors, and commodities

The quality and selection of iShares ETFs are great equalizers as they enable individuals to invest in ways that were once exclusively for professionals. BlackRock measures the quality of its ETFs by how precisely they track their respective benchmark indices and how they perform in diverse market conditions in three ways: liquidity, price discovery, and efficient market access. BlackRock’s portfolio managers, technologists, and market experts handle thousands of benchmarks, perform millions of calculations and portfolio adjustments to seek precise outcomes. They also benefit from the billions BlackRock has invested over the years in technology, including in the Aladdin risk management platform.5

ETFs ARE PREFERRED BY DIGITAL WEALTH INVESTORS

Lack of access is cited as the main reason why investing is a source of stress for people.6 BlackRock’s aim is to clear the road so more people can shift gears from saving to investing. Today, 43 million people worldwide use iShares ETFs, which we seek to more than double to 100 million by the end of the decade.7 We think the digital wealth market will grow into a US$17 trillion industry by 20308, with ETFs playing a key part in that growth. To achieve that, BlackRock is forging new relationships with digital wealth platforms and banks globally to expand access to a broader audience by making investing more convenient and affordable. BlackRock believes that even small, incremental reductions in barriers can result in meaningful behavioural shifts.