BondBloxx backed by ETF veteran team is set to disrupt fixed income ETFs
A glittering assembly of ETF veterans are set to disrupt the fixed income ETF world in the US, launching BondBloxx, a new ETF business solely focused on fixed income.
The new team of co-founders includes Leland Clemons, formerly Head of Fixed Income and Derivatives for Tradeweb Europe and Global Head of Markets and Investment Strategy, BlackRock iShares; Joanna Gallegos, formerly Head of Global ETF Strategy at J.P. Morgan and Senior Product Manager and Managing Director, strategic initiatives group, BlackRock iShares; Elya Schwartzman, formerly a Senior Portfolio Manager, at BlackRock and Senior Portfolio Manager, State Street Global Advisors; Mark Miller, formerly Managing Director and Head of Institutional Sales for the Americas for both fixed income and equities, HSBC and Managing Director, BlackRock iShares and Brian O’Donnell, formerly a Senior Vice President, Head of Business Strategy, Enablement and Administration, Funds and Managed Accounts Northern Trust Asset Management and Managing Director, BlackRock.
The new firm has filed for seven sector-specific funds indexed to the ICE BofA US High Yield Index focusing on: Industrials; Telecom media and technology; Healthcare; Financial; Energy; Consumer cyclicals and Consumer non-cyclicals.
Co-founder Leland Clemons says that the best thing about the group is that they have all worked together in different ways over the last 20 years – one firm, in particular, seems to feature in all their CVs.
“We have been able to see how the ETF market has grown and how innovation in ETFs has brought price transparency and liquidity to asset classes and investors, enabling greater choice,” Clemons says. “What we now see is a tremendous opportunity for the fixed income market to benefit from that same diversity of products, applying a granular precision of exposure to enable more precise portfolio construction, similar to what we've seen in the market and how the ETF marketplace has built out over the last 20 years.”
The team feel that institutional investors are calling for greater choice and more precise exposure in fixed income. “The data is becoming transparent and trading is more electronified. These are the same trends that were happening in the early 2000s that underpin the growth of equity ETFs.”
“We think the confluence of investors increasing their adoption of bond ETFs, as well as the bond market evolving creates a really compelling intersection, and a time to bring more precision exposures to investors,” says Clemons.
Joanna Gallegos says that the team is working together to design the new offering. “It’s a gap we have seen as practitioners that hasn’t been answered yet. We have seen that investors really haven’t had access to precise tools, they just have rather broad tools.”
Elya Schwartzman says: “If you look at the type of volumes that you have seen in fixed income, they are way above the assets under management in the ETF market, about 30 per cent of overall flows but just about 18 per cent of figures overall, so obviously investors want fixed income in the ETF wrapper.”
“In equity ETFs, there are 1800 ETFs basically slicing and dicing the same 500-1000 stocks with a market cap of around USD40 trillion. In bond ETFs, there are only 400 bond ETFs but there are over 85,000 securities representing multiple complex risks and exposures, in a USD45 trillion universe.”
Schwartzman believes that it makes sense that there were structural reasons why it’s taken longer for fixed income ETFs to evolve. “But the market wants it and it’s prepared and all the pieces are now in place to have that offering,” he says.
“If you are a high yield manager right now or a pension fund or a mutual fund and you need to put your extra cash to work in an ETF there is only a broad based high yield option, but if you have an opinion on where the energy sector is going to go, you have to pick the right bonds, the right duration and make sure they are available.
“That takes a lot of resources and time, and some companies can do that but it takes time. We think that by offering these tools we can make those active bets that an investor wants to make as efficient as buying a broad-based ETF, which people have become accustomed to using now as part of their portfolio strategies.”