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June 01, 2020 at 03:24 PM
The Federal Reserve has disclosed the names of the ETFs it purchased in mid-May and the size of those purchases, which were part of its Secondary Market Corporate Credit Facility designed to support the corporate bond market.
In total the Fed purchased $1.307 billion worth of investment-grade and high-yield ETFs between May 12 and May 19 from five ETF asset managers. Investment-grade ETFs accounted for 83% of the assets.
Eight of the ETFs were from iShares, part of BlackRock, which manages the Fed’s ETF purchase program; two from Vanguard; three from State Street Global Advisors; and one each from Van Eck and Xtrackers, the ETF business of DWS, a subsidiary of Deutsche Bank.
BlackRock, Vanguard and State Street are the top three managers for ETF assets, in descending order, and coincidentally the top three sponsors of ETF assets purchased by the Fed, also in descending order. BlackRock, the world’s largest asset manager, has waived advisory fees on the ETFs that the Fed is buying.
Its iShares bond ETFs accounted for 48% of the Fed’s ETF asset purchases; Vanguard, 34% and State Street 15%.
Questions have been raised about the conflict of interest in the Fed’ hiring BlackRock to run several of its bond purchasing programs given the firm’s outsize role in the financial markets. Fed Chairman Jerome Powell told the Senate Banking Committee in May that BlackRock was hired for its expertise amid the Fed’s urgent need to arrange support structures for the bond market, which had been experiencing extreme volatility in March.
“This is a good list … a broad list,” said Dave Nadig, chief investment officer and director of research at ETF Flows, about the list of ETFs that the Fed has purchased. “ It features good funds from great companies. It would have been very, very easy for them to have skipped out on the funds from Van Eck and DWS.”
Since the Fed announced its programs to purchase individual corporate bonds and ETFs in March, the bond market, which was extremely volatile, has steadied.
