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A look inside the Fed's $1.307bn ETF allocation - 7 iShares ETFs account for 48% of the assets

Monday, June 01, 2020
Opalesque Industry Update - The Federal Reserve announced on March 23rd that it would purchase corporate bonds for the first time in its 107-year history. The Federal Reserve Bank of New York announced that the Secondary Market Corporate Credit Facility (SMCCF) will begin purchases of exchange traded funds (ETFs) on May 12th.

The Fed is not the first central bank to purchase ETFs as part of a stimulus package. The Bank of Japan has been purchasing equity ETFs listed in Japan since 2012 as part of its QE program. The Bank of Japan reported holding $289 billion or approx. 76% of the $382 billion investment in the ETF industry in Japan (source: ETFGI Japanese ETFs and ETPs industry insights April 2020 report). This will be the first time in the Fed's 107-year history that it will purchase ETFs.

BlackRock, the world's largest asset manager and largest ETF issuer, will be running the Fed's three debt-buying programs. BlackRock said it would waive investment advisory fees on the iShares ETFs it buys on behalf of the Fed.

The Fed reported that between May 12th and May 19th it purchased $1.58 billion in Investment Grade and High Yield ETFs with a current market value of $1.307 billion. The purchases have been in 15 fixed income ETFs of which 6 are High Yield and 11 are Investment Grade. The majority - 83% - of the investment has gone into Investment Grade ETFs with the remaining 17% allocated to High Yield ETFs.

The ETFs/ETPs industry in the United Sates had 2,315 ETFs/ETPs, assets of $4.046 trillion, from 158 providers at the end of April 2020. iShares is the largest ETFs/ETPs provider in terms of assets with $1.542 trillion, reflecting 38.1% market share; Vanguard is second with $1.074 billion and 26.5% market share, followed by SPDR ETFs with $66.06 billion and 16.5% market share. The top three ETF/ETP providers, out of 158, account for 81.1% of global ETF/ETP AUM, while the remaining 155 providers each have less than 6% market share (source ETFGI United States ETFs and ETPs industry insights April 2020 report).

In the US at the end of April there were 1,292 products that provide exposure to equity indices with $2.970 trillion or 73.4% of overall assets, 284 products provide exposure to fixed income indices with $806 billion or 19.9% of the assets and 84 products provide exposure to commodity indices with 2.5% of the assets (active, leverage, inverse and other products account for the remaining assets). There 76 investment grade corporate bond products with assets of $158.92 billion and 36 high yield corporate bond products with assets of $47.06 billion.

The ETFs the Fed has purchased are managed by 5 ETF managers. There are 7 iShares ETFs on the list which represent 48% or nearly half of the $1.307 billion overall investment. Vanguard has 2 ETFs on the list which account for 35% of the assets, there are 3 SPDR ETFs (SSgA) with 15%, while VanEck and Xtrackers (DWS) each have one ETF with 1% of the overall allocation.

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