BlackRock Inc (NYSE:BLK) Q4 2014 Earnings Conference Call - Preliminary Transcript
Jan 15, 2015 • 08:00 am ET
[Operator Instructions] Your first question comes from Luke Montgomery with Bernstein.
I think obviously some unusual dynamics have been helping the institutional fixed-income ETF usage but it is a question really about the long-term opportunity. You have been adding talent to the sales force there. I think given the need for customized portfolios and immunization of specific liabilities in that context, how do you envision fixed-income ETF shares fitting into institutional portfolio construction? I think it's a question about how you characterize the value proposition rather than any liquidity challenge they might help address in the fixed-income market.
That's a good question. I'm going to let Rob Kapito answer that.
So, the fixed income ETFs have been in increased demand as people are learning about the product. We're still in the early stages not only of institutions using the product but retail using the product as well.
So there are three segments - there are the buy and hold segment where people are using ETFs as a part of their fixed income portfolio for the beta and fixed income, and we have products that are focused on that.
The second thing is that as the financial markets change, ETFs are a surrogate for many financial instruments that have because of regulatory reasons and liquidity reasons become very expensive and they are surrogates for example in swaps and futures where ETFs are now being used, in fact more than futures are being used. And as people learn about that, they add that into their portfolios. On the other side of that, there also being used as we call it precision instruments where people are looking for a specific allocation and ETFs provide that specific precision tool for them to be investing it.
So, this is just a beginning of where fixed income ETFs go and as you know that the fixed income markets are much larger than the equity markets are. So we just see continued growth in that.
So for retail we're attacking that by adding on to our core series where we are adding products that can offer the full suite to what our retail investor would need over the long term in ETFs whether that be in high yield, in corporates, in treasuries, or just generic fixed income.
And then on institutions, because they're looking for more of a trading vehicle and they're looking for the transparency and they're looking for the liquidity, we're adding more specific type of precision instruments for them.
So, I would tell you that the demand to learn about ETFs grows and grows and we're just - we just think this is a market that we're very positive on going forward. And also for portfolio managers that are managing large portfolios, getting the beta exposure from ETFs is cheaper, it's more diversified and it's more liquid than the alternative, and I might add that's really important when you're in a low interest rate environment like we're in.
So, we look forward to more growth