PI Partnership – iShares
impact and provide a rules-based approach to achieve pre-de- fined execution targets.
Beyond this, the introduction of MiFID II legislation saw a number of data and analytics companies begin to aggregate sec- ondary trading volumes across listings and trading venues, offering a much clearer picture of total ETF liquidity. The strat- egy of portfolio trading (in which a counterparty offers a portfo- lio of multiple line items simultaneously, to be taken all together or not at all, in a single trade) has grown significantly in Europe as technology and pricing capabilities have improved. An increase in analytical tools has certainly aided this phenom- enon: Over the past several years, platforms such as Aladdin and Bloomberg have enabled investors to insert ETFs into their toolkit by allowing them to perform relative-value analysis across index products.
The future of the ETF ecosystem
As the ETF market continues to expand, we can expect to see a more diversified investor base and further utilisation of fixed income ETFs. Developments such as larger lending pools of ETF units will further enhance the liquidity in European-dom- iciled ETFs, offering investors an additional source of return. Furthermore, the unit (or ETF share) lending market has ben- efited from the emergence of a fixed income ETF repo market – an increasing number of banks are pricing and trading fixed income ETFs. This has allowed fixed income investors to improve their performance by trading ETF repos directly with
banks, instead of engaging a securities lending agent (cutting out the middleman, if you will).
As the bond market continues to modernise, so too must the techniques fixed income dealers use to interact with ETF issu- ers in the primary market. For example, the iShares Bond ETF primary market platform has improved the predictability and transparency of the custom basket process through the devel- opment of better interfaces with authorised participants (APs), which allows them to electronically submit custom basket pro- posals. Algorithms have been developed which help guide APs when selecting their baskets; this is beneficial as it applies a rules- and exposure-based framework to aid in the selection process. The growing adoption of fixed income ETFs and other index and portfolio-based products, coupled with growth in electronic trading, algorithmic pricing capabilities and dramatic improvements in technology are continuing to revolutionise the way investors access European corporate bond markets. ETFs have proven to be a powerful diversification tool in an environment which has seen more traditional bond instru- ments struggle. The growth in index vehicles is a recognition of the need for liquidity and transparency. We believe ETFs will continue to play an increasingly integral role for investors look- ing to access and navigate bond markets.
Source: ‘The Modernisation of the of the European bond market: The journey continues’, BlackRock, as of 31/12/2021.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of 25/01/2021 and may change as subsequent conditions vary. 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. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. BlackRock has not considered the suitability of any investment against your individual needs and risk tolerance. This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) only and should not be relied upon by any other persons. In the UK and Non-European Economic Area (EEA) countries: this is Issued by BlackRock Advisors (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Registered in England and Wales No. 00796793. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock. © 2022 BlackRock, Inc. All Rights reserved. 2048230.
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