Between May 12 and May 19, the Fed bought $1.58 billion worth of corporate bond ETFs.

For the first time in history, the U.S. Fed is buying corporate bonds and corporate bond ETFs simultaneously as part of a massive stimulus package. The Federal Reserve Bank of New York announced that the Secondary Market Corporate Credit Facility (SMCCF) will commence purchases of ETFs on May 12. Seven iShares ETFs from the BlackRock (NYSE: BLK) stable accounted for 48% of the purchases between May 12 and May 19, according to data released by the Fed. (etfgi.com)

BlackRock funds are a major beneficiary of Fed buying

BlackRock is running the Fed’s three debt buying programs. The analysis of the Fed’s purchases of investment-grade (IG) and high yield (HY) corporate bond ETFs between the period of May 12 and May 19 is as follows:

• total purchases of IG and HY bond ETFs were $ 1.58 billion
• the purchases covered 15 fixed-income ETFs of which six are HY and 11 are IG
• IG ETF’s accounted for 83% of the investment and 17% was allocated to HY ETFs
• the market value of the purchases as on May 19 was $ 1.31 billion

Analysis by manager

According to ETFGI, the breakup of the Fed’s purchases of bond ETF’s by manager is as follows:

• the purchases spanned five ETF managers
• seven iShares ETFs represented 48% of the investment value of $ 1.31 billion
• two Vanguard ETFs accounted for 35%
• three SPDR ETFs with 15%
• VanEck and Xtrackers (one ETF of each) accounted for 1%

BlackRock

It may appear that BlackRock has favored its own funds. However, to be fair, the firm is the world’s largest asset manager and the largest ETF issuer.

“The ETFs/ETPs industry in the United States had 2,315 ETFs/ETPs, assets of $4.046 trillion, from 158 providers at the end of April 2020,” observed ETFGI. “iShares is the largest ETFs/ETPs provider in terms of assets with $1.542 trillion, reflecting 38.1% market share.”

iShares, Vanguard, and SPDR are the top three ETF/ETP providers and account for 81.1% of the global ETF/ETP AUM.

BlackRock has also confirmed that it would not charge investment advisory fees on any iShares ETFs that it buys for the Fed.

“BlackRock is acting as a fiduciary to the Federal Reserve Bank of New York,” a spokesperson for the asset manager said Monday in an emailed statement to Institutional Investor. “As such, BlackRock will execute this mandate at the sole discretion of the Bank, and in accordance with their detailed investment guidelines, in order to provide broad support to credit markets and achieve the government’s objective of supporting access to credit for U.S. employers and supporting the American economy.”

“Given that BlackRock has many of the largest investment-grade and high-yield ETFs, it’s not surprising that the investment in those ETFs accounted for the largest proportion of the asset allocation,” said Deborah Fuhr, Managing Partner and Founder,  ETFGI, to Barron’s. “There is a logic in the selection.”

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