ETF Inflows Top $1 Trillion for First | Stock Market News Today

A historic surge of cash has swept into exchange-traded funds, spurring asset managers to launch new trading strategies that could be undone by a market downturn. 

This year’s inflows into ETFs world-wide crossed the $1 trillion mark for the first time at the end of November, surpassing last year’s total of $735.7 billion, according to Morningstar Inc. data. That wave of money, along with rising markets, pushed global ETF assets to nearly $9.5 trillion, more than double where the industry stood at the end of 2018.

Most of that money has gone into low-cost U.S. funds that track indexes run by Vanguard Group,

BlackRock Inc.

BLK 0.66%


State Street Corp.

STT -0.50%

, which together control more than three-quarters of all U.S. ETF assets. Analysts said rising stock markets, including a 25% lift for the S&P 500 this year, and a lack of high-yielding alternatives have boosted interest in such funds.  

“You have this historical precedent where you have tumultuous equity markets, and more and more investors have made their way to index products,” said

Rich Powers,

head of ETF and index product management at Vanguard.

Asset managers are looking to actively managed funds, some with narrow themes, in search of an unfilled niche not already dominated by the industry’s juggernauts, analysts and executives said. VanEck, for example, earlier this month rolled out an active ETF targeting the food industry. In March, Tuttle Capital Management launched its


which is bullish on stocks popular with individual investors. 

Firms including Dimensional Fund Advisors have converted mutual funds into active ETFs. Meanwhile, bigger firms have rolled out ETFs that mimic popular mutual funds, including Fidelity Investments’ Magellan and Blue Chip Growth funds.

“We should have a broad offering of ETFs that stand alongside a broad offering of mutual funds,” said

Gerard O’Reilly,

Dimensional’s co-chief executive, of his company. “Choose your own adventure.” 

As ETFs, baskets of securities that trade as easily as stocks, have boomed this year, investors poured a record $84 billion into ones that pick combinations of securities in search of outperformance rather than tracking swaths of the stock market. That represents about 10% of all inflows into U.S. ETFs, up from nearly 8% last year, according to Morningstar. 

Asset managers long known for running mutual funds are rushing to take advantage of investors’ interest in active ETFs. More than half of the record 380 ETFs launched in the U.S. this year are actively managed, according to FactSet. Fidelity, Putnam and

T. Rowe Price

are among the firms that have rolled out actively managed ETFs in 2021. Firms new to ETFs have also entered the fray. 

The top 20 fastest-growing ETFs, largely run by Vanguard and BlackRock, this year pulled in nearly 40% of all flows, charged an average fee of less than 0.10 percentage point and tracked benchmarks of some sort. 

Many active ETFs remain comparatively small and charge fees higher than passive funds, putting a swath of new products at risk of closing over the next several years. ETFs usually need between $50 million and $100 million in assets within five years of launching to become profitable, analysts and executives say; funds below those levels have tended to close. 

Of the nearly 600 active ETFs in the U.S., three-fifths have less than $100 million in assets, according to FactSet data. More than half are below $50 million. 

“You’re going to see a lot of those firms take a hard look at their future,” said

Elisabeth Kashner,

FactSet’s director of ETF research.

The stock market’s bull run has helped buoy many ETF providers, Ms. Kashner said, adding that firms have in 2021 closed the fewest number of funds in eight years. But a market pullback, which most stock-market strategists anticipate, could flush out weaker players, she said. 

Vanguard has been a beneficiary of high inflows to funds that track indexes. A statue of founder John C. Bogle.


Ryan Collerd for The Wall Street Journal

ETF closures generally climbed over the past decade, and firms closed a record 277 ETFs last year as the coronavirus pulled markets down. Many held few assets. About a third of all active ETFs are marked as having a medium or high risk of closure, according to FactSet data that take into account assets, flows and fund closure history. 

Factors that have helped stoke active launches, analysts and executives said, include rules streamlined by regulators in late 2019 that made ETFs easier to launch. The approval of the first semitransparent active ETFs, which shield some holdings from the public’s eye, followed.

Analysts also said the success of ARK Investment Management Chief Executive

Cathie Wood

in 2020 showed how active ETFs can score big returns and pull in substantial sums of money. Several of ARK’s funds doubled last year, and its assets approached $60 billion earlier this year, though many of its bets have slumped in 2021. 


How long do you think the boom in exchange-traded funds will last? Join the conversation below.

Most other active managers aren’t doing much better. Two-thirds of large-cap managers of mutual funds have fallen short of benchmarks this year, while roughly 10% of the 371 U.S. active ETFs with full-year performance data are beating the S&P 500. More than a third are flat or negative for 2021. 

“Active management is a zero-sum game,” said FactSet’s Ms. Kashner. “Beating the benchmark quarter after quarter, year after year, is a very difficult task at which active managers have traditionally struggled. The ETF wrapper doesn’t change that calculus.” 

Write to Michael Wursthorn at [email protected]

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Apple, Citigroup, BlackRock, BofA, Delta: What to Watch When the | Sidnaz Blog

Futures are inching up with another wave of reports from big banks under way. Here’s what we’re watching ahead of Wednesday’s trading action.

Bank of America said low interest rates remain a challenge.


David Paul Morris/Bloomberg News

  • Apple

    AAPL 0.79%

    shares jumped 2% premarket after Bloomberg reported that the company is aiming to boost its iPhone production this year by up to 20%. And even though this year’s product update, due in September, is expected to bring only incremental changes, Apple is hoping that the shift to 5G and a better consumer environment post-pandemic will have the newer phones flying off the shelves.

  • American Airlines

    AAL -3.93%

    earnings aren’t due until next week, but investors appear to be hoping for some good news, as its shares are up 3% premarket.

  • Investors in Canadian sports-media and betting company

    Score Media & Gaming

    SCR -2.51%

    were taking their money off the table, sending its U.S.-traded shares down more than 7% off hours. It logged greater sales year over year in the latest quarter due to strength in its media business, but it posted a larger net loss as expenses rose.

  • ZoomInfo Technologies

    ZI -0.19%

    slipped 0.4% premarket after the business-intelligence platform, which is buying for $575 million, on Tuesday raised about $500 million in debt.

Chart of the Day
  • Investor and government funds are pouring into clean tech years after the failures of Solyndra and A123 Systems chilled early enthusiasm for green investing.

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Clean Energy ETFs Take a Hit, but Money Keeps Flowing In | Sidnaz Blog

Investors have lost a bundle this year betting on solar-panel and wind-turbine makers. Their response: to double down.

A year ago, green stocks and the funds that track them rallied tremendously in the aftermath of the market’s recovery from a pandemic-induced swoon. Solar-panel and wind-turbine companies were among firms benefiting from a surge of investor- and consumer-driven demand for renewables, despite many being small unprofitable ventures.

This year, returns are trailing the broader stock market. That is thanks, in part, to stocks having run so far and uncertainty around the Federal Reserve’s interest-rate course and how its actions may ultimately affect growth stocks.

Exchange-traded funds that track renewable-energy indexes have posted double-digit declines so far this year.


iShares Global Clean Energy ETF

has fallen 18% since December;

Invesco Ltd.

’s popular

Solar ETF

has posted a 17% decline.

Even so, money continues to pour in. Professional money managers and individual traders alike have invested $6.2 billion into green-energy ETFs so far this year, according to data from Refinitiv Lipper. The inflows are on course to eclipse last year’s record $7.2 billion.

Index makers and asset-management firms say that, for now, large pullbacks in share prices don’t reflect investors’ desire to bet on green companies.

“It’s an area where we see continuous demand,” said

Ari Rajendra,

a senior director of strategy and volatility indexes at S&P Dow Jones Indices.

At BlackRock, the world’s largest asset manager, clean energy funds reported $2.7 billion in inflows so far this year and $1 billion into a European clean-energy fund, according to FactSet. Interest was so high that S&P had to broaden its clean-energy benchmark used by BlackRock funds to fix the problem of having too much money in mostly small, hard-to-trade companies.

Such changes don’t happen often, said S&P’s Mr. Rajendra, but intense demand from investors warranted the index’s revamp to 82 stocks from just 30. The firm also lowered the criteria for the inclusion of stocks, among other things.

Ross Gerber,

chief executive of Gerber Kawasaki Wealth and Investment Management, thinks renewable-energy stocks, from solar-panel makers to manufacturers of alternative batteries, will eventually transform transportation and other facets of everyday life.

A solar farm in Maine. With clean energy stocks pricey, they and funds that track them may be more vulnerable to market or political changes.


Robert F. Bukaty/Associated Press

Mr. Gerber has put more client cash into Invesco’s clean-energy fund, contributing to the $446 million of total inflows into ETF so far this year. He shuns oil stocks, which are among the stock market’s best performers this year.

“The more speculative the stock, the higher the valuation. But in this market, people care more about fantasy than reality,” said Mr. Gerber. “So with solar, you have a little bit of the fantasy in there, too.”

Invesco’s solar ETF jumped 233% in 2020, while BlackRock’s global clean-energy fund soared 140%—easily the best years ever for both as valuations of green stocks climbed to dizzying heights.

Although both funds have declined in the year to date, valuations are elevated. Invesco’s solar ETF trades at a forward price/earnings ratio of 36, versus 21 for the S&P 500, according to FactSet.

In an interview with WSJ’s Timothy Puko, U.S. special climate envoy John Kerry explains the roles he’d like to see the private sector and countries play in fighting climate change. Photo: Rob Alcaraz/The Wall Street Journal

Meanwhile, clean-energy companies trade at a 70% premium to traditional energy companies based on a ratio of enterprise value to earnings before interest, taxes, depreciation and amortization, a standard valuation yardstick, strategists at

Bank of America

said. They noted this valuation was down from highs earlier this year but still well above the five-year average.

With stocks pricey, they and funds that track them may be more vulnerable to market or political changes. Their allure may dim, for example, if the Fed begins to raise interest rates earlier than expected, taking some of the shine off growth stocks.

Or volatility could increase if there are hiccups for a $1 trillion infrastructure plan agreed to by President


and some U.S. senators. Green stocks rallied last year after Mr. Biden won November’s presidential election, as investors bet the new administration would hasten the U.S.’s transition toward wind and solar energy and away from fossil fuels.

Investors already are experiencing some of that volatility. Clean energy stocks have rallied alongside growth stocks in recent weeks. Invesco’s solar fund is up nearly 11% over the past month, while BlackRock’s ETF has added 2.2%.


What do you think 2021 holds for exchange-traded funds? Join the conversation below.

The willingness of investors to continue pouring money into this part of the market shows they are positioning for a potential longer-term readjustment of the energy sector and economy.

Rene Reyna,

head of thematic and specialty product strategy at Invesco, said expectations are premised on a belief that technology will eventually bring the cost of batteries, solar panels and other green efforts down enough to garner wider adoption—and big profits. In that sense, clean energy is the “hope trade,” he said.

Construction at a wind farm in New Mexico last year. Clean energy companies trade at a 70% premium to traditional energy companies.


Cate Dingley/Bloomberg News

Write to Michael Wursthorn at [email protected]

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Fintech Startup Acorns Plans to Go Public in $2 Billion SPAC Deal | Sidnaz Blog

Acorns automatically invests small contributions from users into baskets of stocks and bonds.


Tiffany Hagler-Geard/Bloomberg News

Acorns Grow Inc. plans to go public through a merger with a blank-check company in a deal that values the digital savings and investing app at about $2.2 billion, according to people familiar with the matter.

The Irvine, Calif.-based financial-tech company is expected to announce a combination with

Pioneer Merger Corp.

PACX 0.21%

, a special-purpose acquisition company affiliated with the hedge funds Falcon Edge Capital and Patriot Global Management, as soon as Thursday, the people said. As part of the transaction and a related private placement involving funds managed by

BlackRock Inc.,

BLK 0.28%

Wellington Management Co. and other investors, more than $450 million in proceeds will flow to Acorns’s balance sheet, the people said.

Acorns automatically invests small contributions from users into baskets of stocks and bonds. It counts more than 4 million subscribers, most of whom pay $1 a month for the service, though Acorns also offers $3-a-month and $5-a-month options for additional features such as bank accounts or retirement plans. As of May, Acorns had $4.74 billion in assets under management, according to a recent regulatory filing.

Special-purpose acquisition companies, or SPACs, like Pioneer are corporate shells that raise money from investors and go hunting for a private company interested in taking both the shell’s cash and its stock listing as an alternative to an initial public offering. SPACs have raised more than $100 billion in 2021, according to data provider SPAC Research. But share prices for many SPACs and the companies they have taken public have tumbled in recent weeks.

SPACs have become a popular outlet for financial-tech startups, with banking startup Social Finance Inc., real-estate platform Better Holdco Inc. and trading app eToro Group Ltd. all agreeing to multibillion-dollar deals with SPACs in recent months.

Private companies are flooding to special-purpose acquisition companies, or SPACs, to bypass the traditional IPO process and gain a public listing. WSJ explains why some critics say investing in these so-called blank-check companies isn’t worth the risk. Illustration: Zoë Soriano/WSJ

Write to Peter Rudegeair at [email protected]

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BlackRock’s Rick Rieder Learned the Value of Moderation From | Sidnaz Blog


BLK 2.13%

bond chief

Rick Rieder

learned long ago that making big bets is the easiest way to end up with outsize losses.

The head of fixed income at the world’s largest asset manager says he is distributing his wagers broadly in the face of unprecedented times. He doesn’t expect the pandemic recovery and fiscal stimulus to spur a wave of inflation that ends the long bull market in bonds, but he is also hedging those wagers after learning early in his career that being right isn’t the same thing as making money.

Recently, that has meant trimming assets sensitive to inflation and interest-rate swings, building up cash in his portfolios and buying more corporate loans for their higher returns. To the clients calling to ask whether the economy is overheating, he says price increases are likely temporary, but that the Federal Reserve will have to gradually reduce support for the economy—a prospect he doesn’t find daunting.

“We don’t think inflation is going to be that high for a persistent period of time,” says Mr. Rieder, 59 years old. “But if the markets believe in inflation, well that’s more important than whether six months from now people say, ‘Gosh, you were right.’”

His stance is a key marker on Wall Street, and it stands out at a time when broad inflation worries have racked markets. BlackRock handles $9 trillion in assets on behalf of investors around the globe. Mr. Rieder oversees roughly 20% of that. That alone would give his decisions reach far beyond the company. He is also known as a wizard at divining market forces from the swings of currencies or sovereign bonds.

Many on the Street disagree with his sanguinity. Investors including Bridgewater Associates founder

Ray Dalio

and billionaire trader

Stanley Druckenmiller

are among those worried that the government’s post-pandemic largess risks fueling inflation, hurting the dollar and inflating asset bubbles. A measure of inflation surged in April as the U.S. recovery gained steam, with consumer prices jumping to the highest 12-month level since 2008.

Mr. Rieder’s position is supported by benchmark bond yields, which continue to suggest a rapid return to slow, steady growth. The yield on the 10-year Treasury note, which tends to rise when investors expect a surge in growth and inflation, settled at its highest level in more than a month after data Wednesday showed a bigger-than-expected climb in consumer prices. It remains below its yearly high of 1.749% hit at the end of March.

Mr. Rieder, who works remotely, is boosting the cash in his portfolios and buying more corporate loans for their higher returns.

Wall Street colleagues and competitors describe Mr. Rieder as the opposite of a swashbuckling trader: affable, modest, measured—a 10-handicap golfer whose favorite course is Augusta National. In an era of slow growth, heavy borrowing and perpetually low interest rates, his focus on the crosscurrents of markets and economics commands attention from many.

“There isn’t an investor out there who doesn’t want to know what he’s thinking,” says

Marc Badrichani,

global head of sales and research at JPMorgan Chase & Co. “With an expansive view of global markets, he has a unique ability to spot emerging trends and incorporate them into long-term investment strategies.”

Raised in Westchester County in New York and educated at Emory University and the University of Pennsylvania’s Wharton School, Mr. Rieder says he enjoyed picking penny stocks when he was younger, such as shares of AMF Bowling Worldwide Inc., and thought he might become a financial analyst. After business school, he joined E.F. Hutton & Co. in 1987 without knowing much about bonds. Brokers shouted and flashed hand signals. The trading floor was jammed with bulky computers, but he says he relied on blotters, pen and paper.

“I’ll never forget the first month, sitting there and thinking maybe this is the wrong job,” Mr. Rieder says. “I couldn’t figure out what they were talking about. It was all lingo. I’d go home, and then a week later I’d realized I heard that word again.”

An early trade provided a lifelong lesson. Mr. Rieder bought a chunk of Canadian bonds issued by a utility company, Hydro-Québec. He still remembers the coupon and maturity—details on a bond that affect its value.

He would stay after work to write down the price of every asset that could move his investment. Certain in his analysis, he bought even more. But word of his position got out to traders at other banks. The price moved against him, and he eventually sold at a significant loss. Ever since, he has avoided putting too many eggs in one basket, a strategy he calls “make a little bit of money a lot of times.”

“It changed my thinking and really influenced how I thought about fixed income,” Mr. Rieder says. “I learned that you may be right, but if enough people believe you’re wrong the markets can really hurt you.”

Mr. Rieder says he prefers to ‘make a little bit of money a lot of times,’ rather than become too reliant on one trading area.

It is a strategy that served him well during his climb at BlackRock. He joined the firm in 2009 to run alternative investments for fixed income and became known for his deep dives into data and a habit of cramming multiple, tiny charts into presentation slides. His performance—three of the funds he manages have been awarded gold medals by rating company Morningstar—eventually earned him a promotion to chief investment officer of fixed income in 2010.

In April 2019 he took over BlackRock’s Global Allocation Fund, which includes investments in stocks. Institutional-class shares have since posted a cumulative return of 35% through March 31, outperforming benchmarks and other comparable funds. More than 85% of BlackRock’s actively managed taxable fixed-income assets beat peers or benchmarks over the one- and five-year periods ended March 31.

Morningstar analyst

Claire Butz

says the ratings company upgraded the Global Allocation Fund in May because of Mr. Rieder’s leadership and ability to combine big-picture views with extensive research. She says his takeover was “a welcome change from the previous manager’s more siloed approach.”

BlackRock has also ascended. Quarterly profit rose 49% in April. The firm posted record inflows, with $61 billion pouring in to fixed-income investments in the first quarter of 2021. Across all strategies, BlackRock took in $171.6 billion in net new money, up from roughly $35 billion in the year-earlier quarter.

That size makes BlackRock a prized client for bond desks across Wall Street, with dedicated top-ranked salespeople squabbling over the revenue generated from its trades. It also poses a challenge for Mr. Rieder’s strategy—making it hard to invest in smaller markets without moving prices.

The inflows also indicate that investors remain willing to buy bonds and other fixed-income investments, despite the worries about inflation or a sudden reversal from the Fed.


What’s your assessment of Rick Rieder’s approach to risk management at BlackRock? Join the conversation below.

Mr. Rieder expects growth to surge and the dollar to remain stronger than many analysts and investors currently predict. Inflation could be “shocked higher over the next few months,” Mr. Rieder says, but he expects it to remain contained in the long term by trends that include an aging population.

“We are living in a very different time than the 1970s and 1980s because of the demographics,” he says. “As the baby-boomer population ages, individuals have to buy fixed income for pensions, retirement investments—and soak up this huge amount of debt that’s coming, meaning it’s not as scary today.”

Still, he has adjusted his holdings for potential inflation risks. He has pared positions in junk bonds, citing their extremely low yields. He is also holding a lot of cash in portfolios, increasing his investments in loans and buying long-dated corporate bonds with derivatives that offer protection from interest-rate swings. He is holding some euros, too.

The possible end of easy monetary policy doesn’t worry Mr. Rieder, who has lived through previous Fed tapering that didn’t deal a lasting blow to stocks and other assets.

“Letting rates normalize, knowing what that plan is—markets can deal with that, they just don’t like uncertainty,” he says. “It’s really hard setting your portfolio up when you’re not certain how that plan will evolve.”

Mr. Rieder has trimmed positions in junk bonds, citing their extremely low yields.

Write to Julia-Ambra Verlaine at [email protected]

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Investors Stay Hungry for Inflation-Protected Bonds | Sidnaz Blog

Demand for inflation-protected bonds remains high despite a recent decline in Treasury yields, indicating that investors have long-term concerns about the impact of economic growth on interest rates.

Investors poured a net $1.2 billion into mutual funds that buy Treasury inflation-protected securities, or TIPS, in the week ended April 21, according to data from EPFR. It was the 29th consecutive week of inflows into such funds, the longest streak since 2010.

Yields of conventional Treasury bonds, which fall when prices rise, have slipped recently as concerns subsided that the Federal Reserve would raise interest rates sooner than projected and foreign investors returned after an early-year exit.

The yield on the benchmark 10-year Treasury note traded around 1.568% Monday, down from 1.749% at the end of March, according to data from Tradeweb.

Still, a measure of investors’ expectations for average annual inflation over the next decade has barely budged. The 10-year break-even rate, which reflects the yield premium on Treasurys over comparable TIPS, was trading around 2.349% Monday, according to data from TD Securities LLC.

The U.S. Federal Reserve building in Washington


leah millis/Reuters

“Inflation is very top of mind,” said

Gennadiy Goldberg,

a U.S. rates strategist at TD Securities. The Fed has signaled it will allow headline inflation to overshoot their 2% target before raising benchmark rates, and rents, a large component of core inflation, have started to strengthen, he said.

Climbing inflation typically causes bond yields to rise as investors anticipate higher interest rates from the Fed and demand higher returns to adjust for the rising costs of goods and services. Large bond funds have been buying TIPS en masse to hedge against that risk, but prices of the securities have risen so high that demand has started to slacken, Mr. Goldberg said.

The yield of 10-year TIPS was around negative 0.784% Monday, compared with negative 0.626% on March 31, according to Tradeweb. Fund-management powerhouse

BlackRock Inc.

BLK 0.71%

has changed its TIPS allocation to neutral from overweight but still prefers inflation-protected debt to conventional government bonds, according to a research report published Monday.

In corporate debt markets, bonds of Diamond Sports Group jumped as high as 53 cents on the dollar Monday, up 10% from the previous week’s close, according to data from MarketAxess. Debt of the sports-marketing company for regional and youth teams has been lifted by the initiation of discussions of a marketing partnership with sports-betting companies, according to a report by LevFin Insights.

Write to Matt Wirz at [email protected]

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U.S. Sanctions Squeeze Russia’s Bonds Despite Economic Strength | Sidnaz Blog

Russia’s markets reacted modestly to U.S. sanctions last week, but the country’s bonds have been weakening for months, indicating that for investors, geopolitical pressure is outweighing the country’s economic strength.

The sanctions announced April 15 bars U.S. banks and institutional investors from buying new Russian government ruble-denominated bonds at auction. The response to Russia’s alleged cyberattacks and election interference is part of a broader strategy by the Biden administration to pressure Russia financially. The U.S. in March released an intelligence report on the alleged election meddling and has stepped up trade sanctions for Russia’s alleged use of chemical weapons.

The new measures stopped short of prohibiting purchases of Russian government bonds in the open market, a step investors and analysts said would have had a much greater chilling effect. Still, the diplomatic campaign has coincided with an increase in Russian bond yields and a relatively modest decline in the ruble, boosting the Russian government’s funding costs.

The deterioration of Russia’s bonds and its currency bucked the expectations of some Wall Street banks, which had predicted that Russia’s strong balance sheet would help it outperform other emerging-market countries in 2021. Russia had low net debt relative to its gross domestic product, according to data from S&P Global Ratings, and analysts took comfort in the government’s commitment to conservative fiscal policy.

“The only reason any of the bonds trade with a risk premium is because of the risk of sanctions and the possibility they’ll escalate from here,” said

Grant Webster,

a portfolio manager who helps invest about $4.5 billion in emerging-market debt at

Ninety One PLC.

One of the mutual funds Mr. Webster co-manages reduced its allocation to Russian government bonds to 3.65% in February from 4.54% in January, according to data from

Morningstar Inc.

The yield on Russia’s 10-year government debt was just above 7% last week, relatively unchanged from before the new sanctions but about 1.1 percentage points higher than at the start of the year, according to data from FactSet. The rise in short-term rates has been more pronounced, with the two-year yield hovering around 5.49%, compared with approximately 4.42% at the end of December. A spokesperson for the Russian finance ministry couldn’t be reached for comment.

Russia has slid to the 18th-largest component of a widely followed

BlackRock Inc.

exchange-traded fund invested in emerging-market local-currency bonds, from fifth in October, according to marketing materials for the fund.

Demand for the ruble might be waning as a result of the sanctions. Heightened risk in Russia could have prompted investors to sell the currency last week to buy the South African rand, according to research by

Morgan Stanley.

Analysts at the bank changed their recommendation on Russian interest-rate trades to “neutral” from “like” based on expectations of a rate increase later this month.

Demand for Russia’s ruble might be waning as a result of the sanctions.


Sergei Bobylev/TASS/Zuma Press

Investment banks were bullish on Russia coming into 2021, in large part because of actions its government had taken to defend against financial pressure from the U.S. and Europe.

Bank of America

ranked Russia as the best of the big emerging-market countries in a December report, citing its “large positive net foreign assets, the lowest public debt, a small fiscal deficit and even a current account surplus—despite low oil prices.”

Oil is Russia’s biggest export, and the price of Brent crude has risen about 29% this year. Yet the country’s bonds have underperformed. That is primarily because of potential U.S. sanctions, said

Tim Ash,

a bond strategist at London-based investment firm BlueBay Asset Management. The new restrictions set the stage for a further ban on U.S. institutions’ trading Russian debt in secondary markets if tension between Moscow and Washington intensifies, he said.

“You have to expect more sanctions,” he said.

The U.S. has gradually restricted investors’ trading in Russian debt. The Trump administration imposed sanctions in 2018 barring U.S. entities from buying debt of some companies and individuals with ties to the Kremlin in retaliation for alleged election interference and hacking. The following year the ban was expanded to purchases of new Russian government bonds issued in foreign currencies, such as the dollar or euro.

The next step would be to start limiting trading of existing debt, Mr. Webster said. “I don’t think chances of that are very high right now, but it’s totally still on the table,” he said. “They have started drawing the dots, and that’s the next dot.”

Write to Matt Wirz at [email protected]

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