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The head of BlackRock's $1 trillion ETF-investing business told us the 3 biggest growth opportunities on his radar — and explained how to start taking advantage of them now

salim ramji
  • Exchange-traded funds helped investors navigate the recent period of volatility, particularly in parts of fixed income where liquidity dried up. 
  • In an exclusive interview, Salim Ramji, the global head of iShares and index investments for BlackRock, shared the growth opportunity this period showcased — and more he sees unfolding for investors' benefit. 
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Exchange-traded funds proved their naysayers wrong during the intense period of volatility that transpired earlier this year.
These baskets of securities exploded in usage during the recently concluded bull market, including among retail investors with less-sophisticated strategies. As a result, critics became concerned that during a period of intense market stress, money would gush out just as rapidly and leave many investors burned. 
So far, this extreme scenario has not played out in the largest and most popular ETFs including the $1 trillion-plus cohort owned by BlackRock's iShares. Conversely, investors poured more money into ETFs than they pulled out for a seventh-straight month in March, with net inflows totalling $5.8 billion according to Refinitiv Lipper data.
ETFs created a virtuous cycle during that period of turmoil, said Salim Ramji, the global head of iShares and index investments for BlackRock and a member of the firm's global executive committee. Greater usage led to greater liquidity, which led to lower transaction costs, which then attracted even more market participants.
This cycle played out most vividly in the bond market. It represents one of three major growth opportunities on Ramji's radar for the long term. He recently explained them to Business Insider in an exclusive interview.

1. Fixed income ETFs

While the bond market is much larger than the stock market, the flow of assets into ETFs since 2000 has decisively been towards equities.
ETFs linked to stocks accounted for 77% of the industry versus 19% for fixed income as of September 2019, according to data compiled by flow-tracking company EPFR. State Street estimates that bond ETFs represent just 1.5% of the investable fixed-income universe.
If the historic volatility witnessed in March is any guide, these numbers could soon tilt more in favor of fixed-income ETFs.
During the first quarter, Ramji observed a greater number of central banks, asset managers, and other sophisticated investors using ETFs to tap the bond market.
After all, the ease of trading, or liquidity, in ETFs was much better than their underlying bonds during the peak of the market's turmoil. The iShares iBoxx High Yield Corporate Bond ETF was one such instrument that proved to be more liquid than its largest holdings.
Overall trading volumes in these ETFs surged to $1.3 trillion in the first quarter alone — half the load of all of 2019 — according to iShares data.  Meanwhile, traditional fixed-income mutual funds suffered record outflows in March.
Ramji expects the usage of bond ETFs to keep growing, thanks to their ease of use, liquidity, and cost-saving benefits.

2. Model portfolios

These ready-made portfolios could be as important to wealth management firms over the next five years as mutual funds were in the 1990s, Ramji said.
The reason is simplicity: model portfolios provide a straightforward way to actualize a client's broader financial plan, whether that's saving for a rainy day or building retirement income.
Additionally, these products are more cost-effective than handpicking a mix of assets that serve a client's stated goal. 

3. Sustainable ETFs

By leaning into sustainability, investors are essentially taking a long-term view on the companies they own, Ramji said.
His CEO, Larry Fink, led the charge earlier this year in a statement on the significance of climate change that reverberated across Wall Street.
So far this year, iShares has pulled in roughly $17 billion in assets tied to sustainable ETFs and index funds. The latter kind of product is where Ramji sees a unique opportunity unfolding. He sees indexation as helping pull sustainable investing from the fringes and into a more prominent place in portfolios. What was once a niche style of investing is worth $200 billion today — and iShares estimates that it will be worth $1.2 trillion by the end of the decade.
The firm launched a trio of ETFs earlier this year, including one that screens corporate bonds for their sustainability merits: the iShares $ Corp Bond ESG UCITS ETF. That's a twofer, considering the aforementioned benefits of fixed-income ETFs.
SEE ALSO: MORGAN STANLEY: The market's hottest stocks are in danger of being disrupted to a degree not seen since the Great Recession. Here's how to adjust your portfolio for the coming shift.
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