'There's an ETF for that' mindset comes for mortgage securities

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The growth of ETFs has helped transform equity markets over the past decade. Now they’re eyeing mortgages.

BlackRock, the world’s largest provider of ETFs, sees fixed income as a growth driver for the indexed products, with corners of the market including mortgage-backed securities ripe for transformation, said Mark Wiedman, the firm’s global head of iShares.

“The ETF is simplifying,” he said, speaking at BlackRock’s investor day on Tuesday in New York. In the future, more packagers of mortgage securities could opt for ETFs instead of mortgage-backed securities, he offered as an example. “We see that growth everywhere in the world,” he said of the trend in fixed-income.

While passive funds track an index, active managers can still beat the averages and earn the much-discussed small-cap premium.
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BlackRock’s iShares MBS ETF, ticker MBB, has $11.8 billion in assets and is the largest of its kind in the U.S.

The firm champions the idea that transforming debt markets will plow additional assets into ETFs. Global ETF assets will swell to $12 trillion by the end of 2023, BlackRock estimated in a report last week, saying that changes in the bond market will play a key role in that growth.

The asset manager also is partnering with Cboe Global Markets and IHS Markit to offer futures tied to U.S. corporate bond indexes, which are expected to debut in a matter of months. The products will give institutional investors easily tradable securities to make forward bets in the debt markets and protect their exposure to U.S. credit risk.

“Fixed-income indexing is crying out to be so much larger,” Wiedman said.

A recent study found that advisors overwhelmingly recommend ETFs to their clients over other newer alternative investment options like cryptocurrencies. The 2018 Trends in Investing survey, conducted by the Financial Planning Association, the Journal of Financial Planning, and the FPA Research and Practice Institute, found that 87% of planners use or recommend ETFs with their clients, up from 72% in 2010 and just 44% in 2008.

Bloomberg News
ETFs Futures Mortgages MBS Index funds BlackRock