BlackRock’s New Fund Taps into Surging Demand for Active ETFs

BlackRock Inc. launched an actively managed exchange-traded fund this week that seeks to tap into rising demand for funds run by a manager tasked with beating the broader market. 

The BlackRock Large Cap Core ETF (BLCR) follows on the heels of the BlackRock Large Cap Value ETF (BLCV), which the firm rolled out in May, marking the start of a new push into the active-ETF space. At the roundtable coinciding with BLCV’s launch, BlackRock said that the fund was its first stock ETF designed to be a main holding for investors. The fund shop has launched more than a dozen active ETFs since then, including BLCR. 

This effort comes at a time when investors have been spending billions on funds that seek to beat market indexes, such as the S&P 500. Active ETFs have pulled in $79 billion through September, about one quarter of all U.S. ETF inflows, according to data from Morningstar. At the same time, active funds make up only a single-digit percentage of U.S. ETF assets, according to research firm ETFGI. 

Active ETF Fund Flows Largest in a Decade

The proportion of flows going into U.S. active ETFs is the largest it's been going back at least a decade, according to Morningstar.  

“The market environment has clearly shifted over the past two years with higher interest rates and inflation,” Nate Geraci, President of asset manager the ETF Store, wrote in an email. “That shift has some investors questioning whether a plain vanilla market-cap weighted indexing approach makes the most sense moving forward.” 

BLCV has accumulated a modest $6 million in assets since its May launch. BLCR may not face the same headwinds, as value stocks have been struggling this year. The iShares Russell 1000 Value ETF (IWD) has lost 2.4% year-to-date, compared to the 21% gain that iShares Russell 1000 Growth ETF (IWF) has generated. BLCR is also cheaper, with a 0.36% net expense ratio, compared to BCLV’s 0.55%. 

Geraci thinks it’s too early to make a judgement on BLCV, and he expects BlackRock to have some success with active ETFs based on the track record of its portfolio managers.

Blackrock's Active ETF Combines Fundamental and Quantitative Analysis

The new ETF picks stocks using both fundamental and quantitative analysis. BlackRock did not provide details on what methods were used when asked for comment. Active stock funds have struggled to deliver outperformance over the long term, with the SPIVA scorecard study indicating a majority of active managers underperform over the long term. 

“Despite the overwhelming historical data showing active management tends to underperform net of fees, some investors will always seek to do better than the market,” said Geraci. 

Contact Gabe Alpert at [email protected]