Blackrock’s Larry Fink On Cyprus: “I Don’t Really Care”

Wednesday, March 20th, 2013

Blackrocks’s Larry Fink “doesn’t really care” about Cyprus, “it’s really not something of concern,” he tells Bloomberg TV. While gesturing that he can’t really discuss specifics as Blackrock is an adviser to Cyprus, he then goes to explain how European and US markets have it all wrong and that “It has some symbolism impact on Europe, but it’s not a really major economic issue.” This dip is “just clients taking some chips off the table and reaping some gains from the huge rally,” he goes on, dismissing the interviewer’s question as nonsense, “this is temporary,” and adding that he “is hyperbullish on the US economy,” and that “global markets will be up 20% this year.” However, what is most fun to watch is his arrogant dismissal of the interviewers question over US depositor fears, there are two reasons that is foolish, he notes “a) we have insurance, so that will not happen; [ZH: umm, so did Cyprus]; and b) we have always prioritized the liabilities [ZH: umm, except for GM].” So all good then, storm in a teacup. Carry On – though he has some stern words for the French and for the Russians.

Perhaps our favorite line:

“Many of the depositors in Cyprus are not EU members – maybe a little east and north of Cyprus – and therefore bearing the cost on depositors is an indication that “we’re fine with bailing out EU members and EU depositors, but this is quite a bit different”

Transcript

BBG: What did you make of the Cyprus situation?

“I really don’t care.”

“Cyprus is a $10bn problem. It is really not something of concern”

“It has some symbolism impact on Europe, but it’s not a really major economic issue,”

“It does remind us of the frailties of Europe; it does remind us that the European fix will be multiple years, but the essence of Cyprus is more symbolic…

Blackrock is representing the Cyprus government so I am not permitted to talk too much about the specifics

Many of the depositors in Cyprus are not EU members – maybe a little east and north of Cyprus – and therefore bearing the cost on depositors is an indication that “we’re fine with bailing out EU members and EU depositors, but this is quite a bit different”

So you dont care about Cyprus but the market did…

This is just clients taking some chips off the table and reaping some gains from the huge rally.

This is temporary

Cyprus is just one of the elements that is being used as an excuse

Were u shocked at them trying to tax bank deposits?

Smugly (2:28) Fink initially ignores the question, smiles a wry smile, and doesn;t answer…

BBG: Well even people in America were questioning that…

A) we have insurance, so that will not happen; (SO DID CYPRUS)

B) we have always prioritized the liabilities (EXCEPT for GM)

Where are we in the European credit crisis? Are we close to the end?

We’re in the third inning. This is a long process, the work done in Spain and Italy over the last year is very good (Spain now has a current account surplus). So there has been much improvement and yet there is a lot more to do…

you still have the instability of finances in France that we cannot underestimate how severe that could become

The OMT was designed to firewall Spain and maybe Italy but there’s not enough money in Europe if France continues down the path of having huge deficits and huge imbalances of productivity

France is just not as competitive as Germany and that remains a big issue

We are going to have 6 more innings of evolving uncertainty

At 5:00, Are we in a correction?

FINK: We are definitely in a pause. Inflows have flattened and most of that money came in from cash – not a rotation from bonds. It was really people putting money to work and now some people are taking them money off

Depending the macro data, we could see a 5% correction or a prolonged 1-2 month pause

At 6:00, but by year end equity markets will be a lot higher with a potentiality for global markets to be up over 20% by year end…. markets are improving, economic conditions are improving, the changes in Japan is a net positive, China is not as weak as we feared, and the US is going from strength to strength to strength – and that is the dominant story in 2013

I am hyperbullish on the US economy

Tags: Blackrock, cyprus, Larry Fink
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Follow the ETP Flows: Corporates Rule

Wednesday, July 18th, 2012

by Dodd Kittsley, CFA, iShares

One of the advantages to working for the largest exchange traded product (ETP) provider in the world is that you have a lot of data at your disposal.  In my role as the Global Head of ETP Research for BlackRock, I deal in data every day, particularly as it relates to the in- and outflows of the 4500+ global ETPs currently in existence.  As you can imagine, examining flows can be a great way to spot investment trends, take the temperature of the market and reveal sentiment shifts.

Right now, for example, global ETPs just experienced their largest first half inflows ever.  ETPs attracted net new assets of $105 billion during the first half of 2012, representing a 16% increase on the $90.6 billion of flows posted during H1 2011.  Total industry assets now stand at nearly $1.7 trillion.

Not surprisingly, fixed income ETPs were a main driver of growth.  As global markets continue to be volatile, investors have increasingly been using these products to capture new and diversified sources of income.  Fixed income ETPs attracted 41% of all inflows with $42.0 billion on the year, or 114% above 2011’s comparable YTD figure of $19.6bn. In fact, June was the 18th consecutive month in which global fixed income ETPs have attracted net inflows.  Total assets invested in fixed income ETPs now exceed $300 billion and account for over 18% of total industry assets.

But here’s something you might not have guessed – within fixed income, investment grade corporate ETPs were the clear leader, bringing in $15.5 billion.  Throughout this year, investors have consistently committed new money to the category, with monthly flows ranging from $1.7bn to $3.2bn.  It appears that many investors may agree with Russ K’s feeling that investment grade debt is the place to look for relative safety (albeit less than Treasuries) with the opportunity for positive real yield.

So what do we think is in store for the second half of the year?  Well, if volatility remains an issue (and Russ K believes it will), we expect to see the flows into fixed income ETPs continue (see chart below).  In fact, if they continue to follow their current trajectory, FI ETPs could actually sextuple their assets over the next 10 years – from $300 billion to $2 trillion.  As my colleague and fellow blogger Matt Tucker has said many times, investors are starting to realize that fixed income ETPs are simply a better way to invest in bonds.

Fixed Income Cumulative Net New Asset Trends

Never one to keep a good story to myself, I’ll be sharing interesting ETP flow data and related insights on a regular basis here on the iShares blog.  And I’d love to hear from all of you – what questions do you have that our data might be able to answer?

Source: BlackRock Investment Institute

Tags: Assets, Blackrock, Cfa, Corporates, Diversified Sources, Dodd, Etps, Fixed Income Investment, Global Head, Global Markets, Investment Trends, Ishares, Nbsp, New Money, Relative Safety, Russ, Second Half, Sentiment, Treasuries, Trillion
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The European Crisis Cycle: Hope, Relief… And Always Disappointment

Monday, July 9th, 2012

By now we can only hope (pun intended) that everyone has seen the David Einhorn chart showing the circularity of the European “summit-based” decisionmaking process – somewhat relevant since we have had 21 summits since 2008 and Europe has never been in a condition quite as bad as last week when a historic move by the ECB to lower the deposit rate to zero and the refi rate below the critical threshold of 1.00%… and nothing happened (that’s not quite true: JPM, Goldman and Blackrock all made it quite clear European money markets are now officially dead).

Of course, the chart above can be applied not only to Europe in its current predicament, but to any Keynesian-based “resoution” which attempts to solve debt with more debt: initial improvement, only for the euphoria to fade once the realization that total leverage in the system has increased, actual cash flow has remained flat at best, or likely declined as none was used to generate incremental revenue, while the amount of eligible collateral for future use has decreased, until one day the debt-creation machinery grinds to a halt.

However, as the following empirical analysis from Credit Suisse shows, the “Einhorn” chart is not just a conversation piece at cocktail parties: there is an actual trade pattern which has made traders lots of money, and which makes Eurocrats the best friends of not only Belgian caterers, but short-sellers everywhere: go long into a summit when the clueless algos read headlines and send risk soaring, only to short the inevitable fizzles days if not hours later.

Once the chart above is updated for the most recent failed June 28-29 summit, we will make sure it is reflected empirically (primarily as a convenience for all those who think they can time the bottom in Spanish bonds just right… just like all those who said that Greek bonds yielding 100% was the absolute bottom, until they hit 1000% 3 months later of course).

So… all those hoping to make a quick buck shorting circular European stupidity have just one question: when is the next summit?

Tags: Blackrock, Circularity, Cocktail Parties, Conversation Piece, Credit Suisse, Critical Threshold, David Einhorn, ECB, Eligible Collateral, Empirical Analysis, European Money, European Summit, Greek Bonds, Incremental Revenue, Initial Improvement, Lots Of Money, Money Markets, Predicament, Short Sellers, Thos
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The Coming Oil Supply Gap

Thursday, July 5th, 2012

Current headlines are filled with talk of gas prices falling below $3 a gallon. It’s a welcome bit of good news for US consumers and 4^th of July travelers, and slow global growth is likely to keep oil prices down in the near term. But in a post early last month, I gave three reasons why I expect crude prices to rebound in the long term: marginal supply is increasingly coming from unconventional higher cost sources, many large oil producing companies require a high crude price to balance their budgets and OPEC has very little spare capacity.

Now, I have another reason to add to my list of why I expect crude price to rise – this chart. Included in a new BlackRock Investment Institute paper, “US Shale Boom: A Case of (Temporary) Indigestion,” the chart shows that global oil demand is likely to greatly outstrip supply by 2030.

Global energy consulting firm Woods Mackenzie expects the oil supply gap to be 20 million barrels of oil daily by 2030. As the Institute’s paper points out, the gap may not end up being this large. Annual global growth, for instance, may not turn out to be as strong as the 3.2% assumption in Woods Mackenzie’s analysis. In addition, higher oil prices could end up weakening demand and new technologies such as shale could help fill in the gap.

Still, I believe that oil prices will move higher in the longer term. As a result, I continue to hold an overweight view of global energy companies. Investors can access these stocks through the iShares S&P Global Energy Sector Index Fund (NYSEARCA: IXC).

Source: Bloomberg

Russ Koesterich, CFA is the iShares Global Chief Investment Strategist and a regular contributor to the iShares Blog. You can find more of his posts here.

The author is long IXC.


In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments typically exhibit higher volatility.

Tags: Accounting Principles, Blackrock, Chief Investment Strategist, Crude Price, Crude Prices, Currency Values, Current Headlines, Energy Consulting, energy sector, Global Energy Companies, Global Growth, Global Oil, Index Fund, International Investments, Ishares, Oil Demand, Oil Prices, Oil Supply, Sector Index, Shale
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Are We Near the End of the Correction? (Doll)

Monday, May 21st, 2012

May 21, 2012

Stocks Drop as Europe Takes Center Stage

by Bob Doll, BlackRock

Although US economic data was generally good last week, stocks sank sharply as investor fears over Europe’s debt problems intensified. For the week, the Dow Jones Industrial Average fell 3.5% to 12,369, the S&P 500 Index dropped 4.3% to 1,295 and the Nasdaq Composite declined 5.3% to 2,778.

At present, the focus of the European debt crisis is on Greece, particularly on next month’s elections. The upcoming elections look to be turning into a referendum on whether or not Greece will remain part of the eurozone. Should the more extreme parties in Greece gain popularity, the greater the likelihood that the country exits the eurozone. The more traditional Greek political parties, as well as the powers that be in Europe as a whole, are pushing for Greece to remain part of the euro, but the outcome is far from clear and the uncertainty has rattled global financial markets.

Of course, Greece is capturing most of the headlines, but perhaps more worrisome is the debt contagion that appears to be spreading to other countries such as Spain and Italy. It is important to note, however, that contagion is not spreading as widely or as deeply as it did last year. This resilience reflects the sounder position of both the global financial system and global economic indicators, although it is difficult to take too much comfort in this fact since a broader resolution of the eurozone crisis is not yet in sight.

In some sense, the only hope for the eurozone is to lower monetary policy further, which would also push the value of the euro lower. Additionally, we believe the European Central Bank would have to engage in larger-scale bond purchases to improve financial market liquidity. The alternative could be the disintegration of the euro over time.

US Recovery Remains on Firm Ground

Despite the mounting crisis in the eurozone, the US economic recovery continues to look stable. Retail sales growth has slowed recently, but we expect the decline in oil prices could help reverse that trend and provide a boost to consumption. Additionally, business spending remains solid and we are seeing a pickup in residential construction. The labor market strength that was evident earlier in the year appears to have ebbed somewhat, but we are calling for improved employment growth in the second half of the year. Our overall economic growth forecast has not changed since the beginning of the year. In January, we were forecasting that the United States would experience growth of between 2% and 2.5% in 2012, and we are sticking to that forecast.

Given the recent increase in global financial stress and the stumble experienced by stocks, there has been some renewed discussion as to whether the Federal Reserve might engage in additional easing measures. At this point, we do not believe that is likely. In our view, the Fed would need to see some deterioration in the pace of economic growth before it would decide to take action.

Market Positives Should Win Out

While it is true that US stocks have taken a turn for the worse over the last month, other markets (particularly European stocks) have been hurt even more. On a year-to-date basis, European stocks are down roughly 3%, while US stocks are still up close to 6%. This divergence represents a continuation of the pattern that has been in place since the current bull market started in March 2009. Since that time, US stocks have appreciated by nearly 70%, while European equities have climbed by just a little more than 10%.

So what is the likely outcome for US stocks given the prevailing backdrop? In the near term, it appears stocks will continue to face crosscurrents that have solid corporate earnings and economic growth pushing prices higher and uncertainty and fear over macro risks pushing them lower. Until these crosscurrents diminish, we expect the volatile trading pattern we have seen over the last several weeks could continue.

Several weeks ago, we suggested the current market correction could push the S&P 500 down to somewhere between the 1,300 and 1,350 level. We are just below the low end of that zone right now, which begs the question of whether the correction is near an end. Forecasting near-term market swings is, of course, an impossibility, but we would point out that with sentiment low, investor cash levels high and valuations compelling, stocks do appear attractive. In our view, markets are awaiting some sort of positive jolt (perhaps in the form of a policy response in Europe or some stronger US economic data) to break out toward the upside.

About Bob Doll

Bob Doll is Chief Equity Strategist for Fundamental Equities at BlackRock®, a premier provider of global investment management, risk management and advisory services. Mr. Doll is also Lead Portfolio Manager of BlackRock’s Large Cap Series Funds. Prior to joining the firm, Mr. Doll was President and Chief Investment Officer at Merrill Lynch Investment Managers.

You should consider the investment objectives, risks, charges and expenses of any fund carefully before investing. The funds’ prospectuses and, if available, the summary prospectuses contain this and other information about the funds, and are available, along with information on other BlackRock funds by calling 800-882-0052. The prospectus and, if available, the summary prospectuses should be read carefully before investing.

The information on this web site is intended for U.S. residents only. The information provided does not constitute a solicitation of an offer to buy, or an offer to sell securities in any jurisdiction to any person to whom it is not lawful to make such an offer.

Sources: BlackRock, Bank Credit Analyst. 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 to adopt any investment strategy. The opinions expressed are as of May 21, 2012, and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

BlackRock is a registered trademark of BlackRock, Inc. All other trademarks are the property of their respective owners.

Prepared by BlackRock Investments, LLC, member FINRA.
NOT FDIC INSURED / MAY LOSE VALUE / NO BANK GUARANTEE

Tags: Blackrock, Bob Doll, Contagion, Debt Crisis, Debt Problems, Dow Jones, Dow Jones Industrial, Dow Jones Industrial Average, Economic Data, Eurozone, Gain Popularity, Global Economic Indicators, Global Financial Markets, Global Financial System, Investor Fears, Market Liquidity, Nasdaq Composite, Reta, Upcoming Elections, Value Of The Euro
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Where to Look for Dividends? Try Outside the US (Koesterich)

Friday, March 16th, 2012

In a world in which fixed income yield is scarce, investors have increasingly been turning to dividend paying domestic stocks as an alternative source of income.

But with much of the dividend corner of the US equity market – including US utility stocks in particular — now crowded and expensive, investors might want to consider looking abroad for dividend income, as I write in my recent Market Update piece. Here are three reasons why.

More Reasonable Valuations: Outside of the United States, dividend paying stocks still appear cheap and are trading at a significant discount to the broader equity market. For example, the Dow Jones EPAC Select Dividend Index – primarily composed of companies domiciled in Europe and Asia – is currently trading at a bit below 12x trailing earnings. In comparison, the MSCI World Index of developed countries is trading at more than 14x earnings.

More Attractive Yields: Non-US dividend companies are offering more enticing yields than their US counterparts. Currently, the Dow Jones Industrial Average yields 2.5%, while the broader S&P 500 yields 2%. In comparison, international markets currently providing yields in the 3% to 5% range include Germany, the Netherlands, Norway, Australia, Hong Kong, Singapore, New Zealand and Brazil.

Outperformance in a Slow Growth Environment: As pointed out in a recent BlackRock Investment Institute paper on the pros and cons of investing in dividend stocks, high dividend paying stocks tend to outperform during periods of slow growth like the one we’re experiencing this year. As the chart below shows, while international dividend paying stocks have generally outperformed a broader global benchmark since 1999, the median outperformance of the international dividend index was more than 18% in years in which global growth was below average. In contrast, in years when global growth was above average, the international dividend index’s relative outperformance fell to around 3.5%.

In short, there’s a strong case for why investors in search of equity income should consider international dividend paying stocks, which are accessible through instruments like the iShares Dow Jones International Select Dividend Index Fund (NYSEARCA: IDV) and the iShares Emerging Markets Dividend Index Fund (NYSEARCA: DVYE).

Source: Bloomberg

Index returns are for illustrative purposes only and do not represent actual iShares Fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.  For actual iShares Fund performance, please visit www.iShares.com or request a prospectus by calling 1-800-iShares (1-800-474-2737).

In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.  There is no guarantee that dividends will be paid.

Tags: Blackrock, Brazil, Chart Below Shows, Developed Countries, Dividend Income, Dividend Paying Stocks, Dividend Stocks, Domestic Stocks, Dow Jones, Fixed Income, Global Benchmark, Global Growth, Growth Environment, High Dividend Paying Stocks, Hong Kong Singapore, International Markets, Msci World Index, Netherlands Norway, Outperformance, Us Equity Market, Utility Stocks
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Dow 15,000: Is this an Outlier Call or Consensus?

Friday, February 17th, 2012

Sources:
Feb. 13, 2012 – (Bloomberg) — Jeremy Siegel, professor of finance at the University of Pennsylvania’s Wharton School, talks about the outlook for U.S. stocks, and his call for the Dow to reach 15,000 by the end of this year, and possibly even 17,000 over at least the next two years, with Trish Regan on Bloomberg Television’s “Street Smart.”

http://www.bloomberg.com/video/86292500/

Mon 13 Feb 13 – Is it too soon to call for a Dow 15,000 based on an article in Barron’s over the weekend? Jim Paulsen, Wells Capital Management shares his thoughts. | 04:06 PM ET

http://video.cnbc.com/gallery/?video=3000073016

Feb. 13, 2012 – Bob Doll, of BlackRock, discusses the likelihood that the Dow will hit 15,000 in 2012.

http://video.cnbc.com/gallery/?video=3000072922

Doug Kass says bullish sentiment is just to prevalent period. And he points to the following:
- Surveys showing a substantial rise in bulls and decline in bears over the last couple weeks
- Hedge funds have increased net long exposure
- Individual investors are putting money into domestic equity funds
- Famed bear Nouriel Roubini is optimist on the market
All told, that would suggest the next big move should be lower.

http://www.cnbc.com/id/46342627

Tags: Barron, Blackrock, Bloomberg Television, Bob Doll, Bullish Sentiment, Cnbc, Couple Weeks, Domestic Equity Funds, Doug Kass, Hedge Funds, Individual Investors, Jeremy Siegel, Likelihood, Nouriel Roubini, Optimist, Substantial Rise, Trish Regan, University Of Pennsylvania, Wells Capital Management, Wharton School
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The Lower Risk Countries in Europe

Wednesday, February 8th, 2012

I noted in a recent post that much of Northern Europe currently represents a good value for long-term investors.

Not only are these countries especially cheap right now, but they generally have better growth prospects than other developed markets and based on current credit default swap spreads, they are perceived as less risky than their southern neighbors.

Now, a new BlackRock Investment Institute paper offers further evidence in support of the case for the Northern Europe. The paper, “BlackRock Sovereign Risk Index: Eurozone Revisited & Notable Movers,” contains the Institute’s latest quarterly update of its Sovereign Risk Index scores, which measure countries’ sovereign risk.

According to the latest ranking, “fiscally squeaky clean and economically robust” Northern European countries are at the low-risk end of the spectrum, while slower-growing Southern European countries plagued with debt problems dominate the higher-risk side of the index data.

It’s also worth pointing out that the Southern European countries tend to rank lower than most emerging markets, supporting my view that many emerging markets actually appear to be pictures of fiscal rectitude compared with much of the developed world.

In fact, a number of emerging markets moved up in the new quarterly ranking. As shown above, for instance, China and Peru both jumped up three notches due to new economic data showing better fiscal situations.

Source: The BlackRock Investment Institute

Tags: Amp, Blackrock, Countries In Europe, Credit Default Swap, Debt Problems, Economic Data, Emerging Markets, Growth Prospects, Index Data, Index Scores, Movers, Northern Europe, Northern European Countries, Rectitude, Risk Index, Southern European Countries, Southern Neighbors, Spectrum, Term Investors, Three Notches
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From Divergence to Nemesis, More 2012 Economic Scenarios

Thursday, January 12th, 2012

by Russ Koesterich, Chief Investment Strategist, iShares

Recently, I described three possible scenarios for the global economy in 2012. Now, a new outlook piece from the BlackRock Investment Institute offers even more scenarios for this year — five to be exact.

The Institute’s outlook, “The Year of Living Divergently,” is the result of a December forum that I attended in San Francisco with about 35 other BlackRock investment strategists (I’m a founding member of the Institute). While the Institute’s outlook has more scenarios than mine, broadly speaking its scenarios and the probabilities assigned to each one are similar to those in my 2012 piece.

As I mentioned in my outlook, I think the most likely scenario for 2012 is a continuation of “The Great Idle”, and I put the chances of this scenario occurring at about 60%. I expect slow but positive global growth, with certain smaller developed markets and emerging markets growing significantly faster than other regions.

The Institute has a similar base case scenario for 2012, which it calls “Divergence,” and assigns it a 40% to 50% chance of occurring. This scenario describes a world in which the global economy avoids a recession, but there are significant divergences in the economies of different regions. In this scenario, Europe is the worst positioned for 2012 and experiences a recession. Meanwhile, the United States and Japan muddle through and emerging economies continue to outperform.

For the Divergence scenario, the paper advocates an overweight position in equities, corporate bonds and metals, including gold. Within equities, I would advocate an overweight to emerging markets, energy and natural resources stocks.

The Institute and I also agree on the second most likely scenario for 2012: A Global Market Crash. The Institute calls this scenario “Nemesis” after the Greek goddess who punishes the proud. The Institute ascribes a 20% to 25% probability to it (slightly lower than the 35% odds I put on it).

A disorderly default or banking crisis in Europe would be the most likely trigger of the Nemesis scenario, although other possible catalysts include US policy mistakes or hostilities between Israel and Iran. If this scenario were to occur, it would be characterized by a global recession, global credit crunch, social upheaval and steep losses across asset classes.

Under the Nemesis scenario, there are unfortunately few places to hide other than cash and US, German and Japanese government bonds.

When it comes to the differences between the Institute’s outlook and mine, the largest one is that the Institute offers five scenarios versus my three. Why the difference? The Institute’s outlook divides my “Great Idle” base case into two more granular scenarios: Divergence and Stagnation, which is essentially a continuation of today’s sluggish global growth.

In addition, the Institute offers a scenario where inflation occurs around the world and ascribes a 5% to 10% probability to it. Though I believe this scenario is a possibility over the longer term, I didn’t include it in my outlook because it has a very low probability of happening in 2012.

Copyright © iShares

Tags: Base Case, Blackrock, Case Scenario, Chief Investment Strategist, Corporate Bonds, Different Regions, Divergence, Economic Scenarios, Emerging Economies, Emerging Markets, Founding Member, Global Economy, Global Growth, Greek Goddess, Investment Strategists, Market Crash, Natural Resources Stocks, New Outlook, Overweight Position, Probabilities
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On Tap for 2012: More Bond Market Transparency

Monday, January 9th, 2012

In my year-in-review blog, I noted that fixed income market conditions in 2011 turned out to be pretty much the opposite of what investors were expecting. With that in mind, I am well aware of how difficult it is to offer predictions for 2012. But I did want to provide a few insights into how I expect the fixed income ETF landscape to evolve this year.

One trend I definitely expect will continue is the launching of new fixed income ETFs.  2011 was a strong year for new products, with 102 new fixed income funds launching across exchanges in Europe, Canada, Asia and the United States. As of December 6, the total number of fixed income ETFs globally had grown to 467, according to data from BlackRock and Bloomberg.

Within the United States there have been a total of 39 new funds launched this year. One of the big trends has been the introduction of funds that offer exposure to bond markets outside the United States. For instance, this year we saw new funds launch that provide exposure to offshore Chinese Yuan denominated bonds. Broad local currency emerging market debt funds also launched that offered investors additional ways to access non-US dollar bond markets. In Europe, product launches focused on gaining access to non-Euro zone markets, like the United States or emerging markets.

With 115 new fixed income ETFs filed with the Securities and Exchange Commission as of December 6, this will be another busy year for fixed income ETF launches. The most popular sector for new filings is broad market, with 23 applications. This is followed by 16 filings for international developed ETFs and 14 filings for investment grade credit fixed income ETFs.

Based on the pipeline, more active mangers appear ready to get into the ETF game. The active managers that have filed for fixed income ETFs have chosen to start with broad market and active short duration funds.

Source: SEC EDGAR and BlackRock’s HEARSAY database

The continued growth of the fixed income ETF market should provide investors with even greater clarity into fixed income market movements. It is now possible to see and track investor behavior in fixed income by watching fixed income ETF trading volume and fund flows. For many investors this is providing them with real-time data on bond market movements for the first time. The expansion of the fixed income ETF market will allow all investors to see investor sentiment expressed on an even larger number of markets.

Bonds and bond funds will decrease in value as interest rates rise. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

Tags: Blackrock, Bloomberg, Bond Market, Bond Markets, Broad Market, Chinese Yuan, Debt Funds, Dollar Bond, Emerging Market, Emerging Markets, Euro Zone, Europe Canada, Europe Product, Fixed Income Market, Investment Grade, Investment Objective, Market Transparency, Securities And Exchange Commission, Year In Review, Year One
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