BlackRock Launches 2 Active ETFs

BlackRock Inc., the world's biggest issuer of exchange-traded funds, launched a pair of actively managed ETFs while arguing that the products should be a central part of all investors' portfolios.  

Blackrock’s iShares unit, which manages $2.31 trillion in 385 ETFs, launched the Large Cap Value ETF (BLCV) and the BlackRock Flexible Income ETF (BINC) on Tuesday. At the same time, the $9 trillion asset firm hosted an event where executives including Rick Rieder, CIO of Global Fixed Income, argued for active ETFs as part of a core portfolio, not just specialized segments.  

“The rate of growth into active ETFs is sizable, double what index [funds are]; same for client flows,” Reider said at the event at Manhattan’s Hudson Yards. 

The current crop of funds is aimed at being part of clients’ core portfolio, whereas past ones were more specialized products, Rachael Aguirre, head of U.S. iShares Product said, adding that BlackRock has had active ETFs for 20 years. 

The firm faces a significant challenge convincing clients to make active ETFs a core part of their portfolio, as active funds have typically not performed as well as their rival passive, or index, funds, while also charging steeper management fees.  

BLCV and BINC charge management fees of 0.4% and 0.55%, respectively.  

A panel member at the event explained the appeal of the active funds, saying demand for active ETFs is “particular strong among fee-based advisors.”  

BlackRock explains its fees by saying that 90% of its active taxable fixed income, and 81% of its fundamental equity assets, have outperformed either their benchmark or peer median over the past five years.  

Still, active funds overwhelmingly lag their passive peers. 

At the event, portfolio managers discussed how the current investing environment differs from that of the last decade, and why this time active management will outperform.  

Rieder, BINC’s portfolio manager, said that the gap between the best and worst performers in the fixed income market had significantly expanded.  

Tony DeSpirito, CIO of Global Fundamental Equities and portfolio manager for BLCV, said that rising interest rates was a major catalyst for new active management opportunities. He described the zero-interest rate period before last spring as “pulling forward” the future earnings for growth firms since the comparative yield an investor would get waiting was so little.  

Contact Gabe Alpert at [email protected]