Index Investing
At BlackRock, our approach to index investing is anything but passive. We understand that investors today demand more efficient returns and innovative ways to use index strategies.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Why BlackRock for index investing?
For UK institutional investors the investing landscape is harder than ever. Extracting every unit of return for a given amount of risk is crucial, and barbelling of asset allocation across index and more complex alphas such as private markets is a trend that continues to deepen.
The indexing landscape has evolved considerably over the past decades and this webpage is a starting point for institutional investors to understand that change, interpret it and begin the conversation with us, on how to capitalise upon it.
|
Index mutual funds: |
Professionally managed funds which pool the money from many investors and invest it in a portfolio of assets constructed to track the performance of a particular market index, such as the FTSE 100 or the iBoxx Sterling Non-Gilt Index. |
|
Separate accounts: |
Investment vehicle that offers the same investment opportunities as a mutual fund, but instead gives the investor direct ownership of the securities in their account, with the potential to customise elements of the managed strategy. |
|
Exchange traded funds (ETFs): |
Pooled investment funds that aim to track the performance of a specific index, such as the FTSE 100, by investing in a basket of stocks, bonds or other assets, and can be bought or sold on exchange. ETFs are often compared to index mutual funds with which they share key similarities, but also some differences, for example index mutual funds cannot be bought and sold on exchange in the same way. Find out more here. |
Historically, index mutual funds and market cap weighted indices have been the mainstay for passive investing amongst pension schemes, insurance companies and other institutional investors. However, over time indexing has evolved, with the ETF market growing significantly, particularly over the past decade, from under US $1tn in 2009 to over US $7tn today1. Institutional investors are now increasingly turning to ETFs as an investment tool to help with a series of investment portfolio challenges.
Indexing has also evolved from an exposure standpoint, with single countries, factors, ESG, sectors and currency hedged share classes now widely available.
1 BlackRock Global Business Intelligence, April 2020
Learn more about index investing at BlackRock
Paragraph-3
Dynamic Article List-1
Dynamic Article List-2
Paragraph-4,Bio-1,Bio-2
Sustainability
Integrating sustainable solutions into portfolios is becoming an increasing focus for institutional investors. The iShares EMEA sustainable product offering caters to a variety of ESG objectives, offering a broad range of sustainable strategies, across ETFs and mutual funds, to meet the needs of our clients, wherever they are in their sustainable journey.
Risk: This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This is for illustrative and informational purposes and is subject to change. It has not been approved by any regulatory authority or securities regulator.
The environmental, social and governance (“ESG”) considerations discussed herein may affect an investment team’s decision to invest in certain companies or industries from time to time. Results may differ from portfolios that do not apply similar ESG considerations to their investment process.
Fixed income
BlackRock is a leading provider of indexed fixed income investments, with institutional index mutual fund and ETF strategies spanning the world's investable fixed income markets. Our full spectrum of global index products can provide efficient, cost-effective exposure to specific market segments.
Fixed income ETFs have also become the main reference instrument for liquidity and price discovery in bond markets, and a critical part of every fixed income investor’s toolkit.2
During the extreme market volatility experienced in the first half of 2020, fixed income ETFs passed their biggest test to date, as highlighted in the BlackRock paper “Turning Point”. When volatility struck, fixed income ETF trading surged, reaching US$17.5billion on average from late February through to late March 2020, more than twice the 2019 weekly average. Similarly, on 12 March, one of the worst days for equity markets in modern history and a day during which credit markets sold off sharply, the iShares US$ Corp Bond UCITS ETF (LQDE) traded almost 1,000 times on exchange compared with just 37 times on average for its largest five bond holdings.3
BlackRock is a leading provider of both alpha and indexed fixed income investments. iShares offers over 90 ETFs in UCITS format across a range of fixed income exposures.4 An extensive range of fixed income ESG ETFs also help investors meet ESG integration requirements. In an increasing number of institutional portfolios, fixed income ETFs are used for both tactical and strategic asset allocation, as well as in liquid beta sleeves.
2BlackRock, Bloomberg, as of 30 June 2020
3BlackRock Turning Point, as of 30 July 2020
4BlackRock, as of 30 March 2020
Risk: There can be no guarantee that the investment strategy can be successful and the value of investments may go down as well as up.
Tactical asset allocation
Institutional investors are increasingly using ETFs to invest tactically, for shorter time periods, due to their liquidity, lower costs and wide breadth of exposures available. Given the hunt for yield, the ability to express a view across shorter time periods is essential in the pursuit of higher portfolio returns.
Niche exposures
ETFs offer a more granular range of exposures while our index mutual funds typically offer broader sector exposures. To put that into context, in EMEA the iShares ETF and index mutual fund range has over 750 funds, offering institutional investors the opportunity to use this granularity to target specific sectors, countries, factors and ESG styles. In addition, new areas of focus, such as Gold and China Bonds are becoming increasingly popular. Having more granularity at a time where the hunt for yield across both equities and bonds is becoming harder is essential.
Liquid beta sleeves
Cash in institutional investors’ portfolios may lead to a material drag on performance. Pension funds are increasingly holding more cash to pay member benefits, fund private markets, or simply to have cash as dry power. For insurance companies, cash typically forms part of their investment portfolio to manage working capital, claims accounts and reserves or premium receipts.
Using the enhanced liquidity of ETFs, liquid beta sleeve is a combination of ETFs that seek to solve the issue of excess cash without compromising on returns and liquidity.
Cash in perspective:
- UK pensions market:
- 2% allocated to cash by UK pension funds5
- £30bn estimated amount of cash held by UK pension funds6
- UK insurance market:
- £1.7T7 invested assets UK Insurance Market
- 7% cash holdings in strategic asset allocations (SAA)
5Mercer, European Asset Allocation Survey 2019
6Willis Towers Watson, Global Pension Asset Study 2019, Thinking Ahead Institute
7EIOPA Report 2018
More articles loaded. Use Shift+Tab keys to browse.
-
Incorporating sustainable frameworks into the investment process
Joe Bello, Head of UK Asset Management Sales, discusses the shift towards sustainable investing. -
UK Asset Owners: The 2021 Outlook
Armit Bhambra, discusses the 2021 outlook for Asset Owners from a pensions perspective, with a spotlight on ETF education. -
This time is different: assessing the impact of the recent coronavirus
In this paper, we analyse the near-term and structural implications of current market events for the average UK corporate pension scheme. -
Emerging market equities - a changing landscape worth revisiting
In this article, we explore how index changes have brought new countries into the ‘emerging’ fold, how investors are accessing emerging markets, and we give readers a sense of our current macro outlook on China. -
Fixed income ETFs - a turning point for European pension funds
Over the past decades, the relationship that pension funds have with fixed income markets has become more entwined. In this article, we take a more in-depth look at institutional adoption of fixed income ETFs. -
Liquidity & implementation - liquid beta sleeves
This article looks at the use of liquid beta sleeves to fit a scheme’s specific cashflow needs, by combining index products in a liquid, customisable way. -
ETFs for ESG: sustainable investing is here to stay
Sustainable investing was once viewed as a trade-off between value and ‘values’. Yet today, it’s something investors can no longer afford to ignore. -
Focus on fixed income - bond ETFs
This article explores why pension schemes should add fixed income ETFs to their toolkit in a time of need. -
Implementation: a liquid diet for trustees
The balancing act of locking assets up whilst retaining enough liquidity to meet member benefits, if done correctly, can improve the returns generated from a scheme’s asset allocation.
More articles loaded. Use Shift+Tab keys to browse.
-
The modernisation of the European bond market
In this webinar, experts at BlackRock and IHS Markit will discuss the structural change driving the future of European bond markets. -
Sustainable mythbusting: getting the facts straight
In this webinar, experts at MSCI & iShares will debunk these myths to help give investors the clarity they need to build sustainable portfolios. -
How are pension funds seeking new cost efficiencies?
In this webinar, we focus on ETFs and when and why it maybe more cost efficient to use an ETF instead of an alternative wrapper. -
Building sustainable portfolios
Hear from experts at MSCI & iShares as they break down the sustainable investing landscape and the various ways investors are building sustainable portfolios. -
Bond ETFs: primed for growth - 4 key trends driving future bond ETF
Listen to the replay of this lively discussion around the fixed income market, how your peers are implementing bond ETFs in their portfolios and 4 key trends driving future bond ETF adoption.
