(Bloomberg) — An update to BlackRock Inc.’s model portfolios. led to record inflows for the largest publicly traded fund that protects investors from inflation.
The $30.7 billion iShares TIPS Bond ETF (ticker TIP) absorbed nearly $1.4 billion on Friday, according to data collected by Bloomberg. That same day, $1.3 billion was raised from the $16.3 billion iShares US Treasury Bond ETF (GOVT) – also the most ever.
In an emailed statement, BlackRock confirmed that it has recently made some asset allocation changes to reposition its model portfolios for inflation protection and adjusting sector exposures.
“After this rebalancing, some ETFs in the model portfolios experienced inflows and outflows, driven by advisors choosing to manage and trade their clients’ portfolios in accordance with BlackRock’s models,” it said.
For the industry, it’s a strong reminder of the growing power of models, turnkey investment strategies that usually consist of bundles of ETFs. It is a cheap and easy way of investing that is proving to be extremely popular with both advisors and their clients, so much so that they now hold trillions of dollars. This increases the risk of unexpected moves if a key strategy is adjusted.
Read More: Wall Street Creates $3 Trillion Whale In Model Portfolio Boom
Meanwhile, the shift also reflects the inflation debate that is currently shaping the markets. As concerns about a coronavirus resurgence cast a cloud over the global economic outlook, Treasury bills have surged. Real interest rates in the US fell to a record low on Monday, even as a report this week is expected to show the economy grew at an annualized rate of 8.5% in the second quarter.
While breakeven inflation expectations have stalled, price pressures are poised to build from here, according to Mizuho International Plc, as the Federal Reserve remains on the sidelines.
“US breakevens are going to be a lot higher,” said Peter Chatwell, Mizuho’s head of multi-asset strategy. “The market continues to underestimate how much the Fed’s response function has changed and how much inflation they will have to tolerate to avoid derailing the recovery.”
Read: US real yields plunge to record high amid growth concerns
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