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BlackRock sees growing Asian appetite for bond and equity ETFs

The growth of BlackRock (BLK)'s fixed-income exchange-traded fund business in Asia has picked up steam over the past year in terms of both breadth and depth, said Geir Espeskog, the Hong Kong-based managing director and head of iShares distribution, Asia-Pacific.

BlackRock added 53 new fixed-income ETF clients in the region in 2017, a 24% increase from the year before, while the number with notional fixed-income ETF exposure of between $100 million and $200 million surged 65%, said Mr. Espeskog in an interview.

That growth reflects, in part, clients' prior due diligence and familiarity with equity ETFs, which is leading them now to employ those investment vehicles for other things.

While the global stock market rally of the Trump administration's first year in office provided a strong tailwind for equity ETF demand, the spike in market volatility this year has spurred growing client interest in fixed income, he said.

For 2017, BlackRock garnered net equity ETF inflows of $8.7 billion from Asia-Pacific clients, which together with rising market valuations, helped boost the firm's regional iShares business to $100 billion from $70 billion the year before, Mr. Espeskog said.

Equity ETFs accounted for roughly $80 billion of that year-end total, with the remaining $20 billion in fixed income. That compares to a $55 billion-$15 billion split at the end of 2016.

If the past year was a "very strong" one for equity ETFs, it still counted as a strong one for fixed income as well, Mr. Espeskog said.

BlackRock's net fixed-income ETF inflows for the past year came to $3.8 billion.

Demand for equity ETFs was very strong as the new year began with continued market gains, but has moderated since.

Net equity ETF inflows in the region for the quarter ended March 31 jumped to $10.5 billion, already exceeding the full year figures for 2017.

First-quarter net inflows for fixed-income ETFs were $2.5 billion, on pace to surpass 2017's $3.8 billion total.

Tactical considerations are favoring fixed income ETFs now. With the recent pickup in volatility, clients have been "gravitating again into more fixed income as a diversifier," Mr. Espeskog said.

But the structural growth in fixed-income ETF demand is the more important trend, he said.

ETF clients' ability to nimbly add or reduce fixed-income exposure is becoming increasingly important, particularly for smaller clients in an environment where shrinking bank balance sheets are making it harder for clients to efficiently trade underlying bond portfolios, Mr. Espeskog said.

But demand from large institutions is growing as well, he said.

In 2017, BlackRock launched a Barclays Bloomberg Global Aggregate bond ETF on behalf of a large Asian asset owner, which allocated $850 million to it, and another ETF for Korean asset managers making initial allocations to offshore bonds of more than $500 million, Mr. Espeskog said. He declined to name the clients.

Four months into the year, BlackRock's ETF AUM for clients in the Asia-Pacific region stands at $114 billion, he said.