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BlackRock Rakes in Big Portion of Fed’s ETF Investments

The Fed’s top-five purchases of ETFs last month included funds that buy investment-grade and high-yield corporate bonds, according to ETFGI.

BlackRock’s exchange-traded funds were a massive target of the Federal Reserve’s unprecedented intervention in corporate bond markets, according to research from ETFGI.

The Fed bought $1.58 billion in investment-grade and high-yield ETFs from May 12 to May 19, with BlackRock’s iShares funds representing 48 percent of the $1.307 billion market value at the end of that period, ETFGI said in a May 30 report. The iShares iBoxx $ Investment Grade Corporate Bond ETF, which trades under the ticker LQD, was the biggest beneficiary based on the number of shares purchased and their market value.

BlackRock, which is running three debt-buying programs for the government, is waiving investment advisory fees for iShares funds it buys on behalf of the Fed, ETFGI said in its report. The firm’s iShares business is the biggest provider in the ETF and exchange-traded products market based on assets, with 38 percent of the share, according to the report.

“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. “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.”

The Fed had announced March 23 it would buy corporate bonds as part of its sweeping efforts to support the economy during the coronavirus crisis. In an unprecedented move tied to that intervention, the Federal Reserve Bank of New York said last month it would begin buying ETFs on May 12.

[II Deep Dive: The Corporate Bond Market Is ‘Basically Broken,’ Bank of America Says]

The Fed bought shares of eight BlackRock ETFs, or just more than half the total 15 purchased, the report from ETFGI shows. That included 2.52 million shares of the BlackRock ETF with the ticker LDQ, an investment worth about $326 million on May 19. BlackRock’s iShares iBoxx $ High Yield Corporate Bond ETF was also among the top five funds targeted under the program, based on the number of shares bought and their market value.

BlackRock will charge no asset management fee on the value of any ETFs held within the Fed's Secondary Market Corporate Credit Facility, according to the term sheet of its agreement the Federal Reserve Bank of New York.

Other large asset managers that have benefited from the program include Vanguard Group and State Street Corp., according to ETFGI’s report. Two Vanguard ETFs that buy investment-grade corporate bonds were also among the top five purchases by the Fed last month. They trade under the tickers VCIT and VCSH.

The Fed bought 2.48 million shares of VCIT, an investment valued at $228 million on May 19, the report shows. That’s similar to the 2.78 million shares of VCSH it purchased, valued at about $226 million at the end of last month’s buying period under the emergency program.

Most of the Fed’s ETF purchases were in investment-grade funds, ETFGI said, adding that 17 percent of its investments went toward junk bond ETFs. Still, State Street’s SPDR Bloomberg Barclays High Yield Bond ETF, which trades under the ticker JNK, was the fifth largest purchase for the Fed, which invested in around 900,000 shares valued at about $90 million on May 19. 

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