Fixed income ETFs bound for US$2 trillion: iShares

Fixed income exchange-traded funds (ETFs) are yet to reach their full potential in Australia and will grow significantly as global bond markets evolve and changing demographics drive investors to seek income producing assets, head of iShares Australia at Blackrock, Mark Oliver said.

"In the short time that fixed income ETFs have been trading on the Australian Securities Exchange, fixed income ETF assets have grown to AU$93.25 million at the end of June.

"We believe they are still just scratching the surface of their potential in this market," Oliver said.

The acceleration of the global fixed income ETF market has been particularly poignant over the past year, with the global market attracting some of its strongest asset flows to date, he said.

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The first half of 2012 saw the market attract US$40.8 billion in net new assets, with inflows accounting for 40 per cent of all global exchange-traded product (ETP) inflows, according to BlackRock's latest ETP landscape report.

And iShares expect this to balloon to more than $US2 trillion over the decade from US$302 billion today. The US fixed income ETF category is expected to grow to US$1.4 trillion in assets, with Europe and Asia making up the remaining US$600 billion.

Oliver said the uncertainty of shares in the short and medium term meant defensive assets were an important part of investor's portfolios, particularly in retirement.

"As fixed income ETFs continue to be more fully embraced by individuals, advisers and financial institutions, they will solidify their standing as an important fixed income capital market instrument," he said.