BlackRock has launched two active exchange-traded funds that will give investors access to its investment insights using ETF wrappers.
On Tuesday, the New York-based firm hosted a roundtable discussion, entitled “Navigating Today’s Market Volatility with Active Strategies.” At the same time, the firm announced the launch of the BlackRock Flexible Income ETF (BINC) and the BlackRock Large Cap Value ETF (BLCV).
Rachel Aguirre, head of U.S. iShares product at BlackRock, said during the discussion that the funds were designed to offer liquidity, transparency and tax efficiency.
She said that active exchange-traded funds have been one of the fastest growing ETF categories, with about $400 billion in assets, and more than 50% compound growth in the past three years. Even so, these funds represent only about 6% of the overall ETF market, she added.
BlackRock’s active ETF product line has $13 billion in assets under management across 20 active products.
The BlackRock Flexible Income ETF will be managed by Rick Rieder, chief investment officer of global fixed income at the firm. The fund will pursue yield opportunities using a diversified and nimble approach, Aguirre said.
“It gives investors access to those harder-to-reach fixed-income sectors,” she said. “What we love about BINC is it is designed to sit alongside and be complementary to core bond holdings within an investor’s portfolio, allowing them to customize how much yield enhancement they want.”
Tony DeSpirito, global chief investment officer of fundamental equities at BlackRock, will manage the BlackRock Large Cap Value ETF. The fund will invest in U.S. large-cap value companies to maximize the amount of total returns it provides investors.
Aguirre said, “Again, it is designed to sit at the core of an investor’s portfolio.”
The flexible income fund will have an expense ratio of 0.50% and a net expense ratio of 0.40%, while the large-cap fund will have an expense ratio of 0.55%. Both ETFs went live on Tuesday, though the firm declined to comment on what platforms they would be available on.
DeSpirito and Rieder also sat on the roundtable and offered their thoughts on the state of the economy, including speculation about a pending recession and the current state of inflation.
While many in the industry are expecting a recession later this year, Rieder said he’s not as convinced and believes the economy is in better shape than people give it credit for.
“There’s been this dynamic that you hear in the media all the time that the U.S. is going into a recession and it’s a deep recession and I don’t just agree with it,” he said.
He pointed to numbers such as real government spending, resident and non-resident spending, and even housing, saying these don’t suggest that a recession is around the corner. He called it “pretty unusual or almost impossible” for the country to fall into a recession with those numbers when the unemployment rate is meanwhile at 3.4%.
As for inflation, DeSpirito said it should continue to come down, though he added that the days of low inflation are in the past. After the global financial crisis, there was significant supply keeping inflation was low, and that translated into low interest rates.
But things are different in a post-Covid world, he said. Supply is much more restrained by several factors. The first is a demographic shift—as more people age, they will be retiring, and the labor force will begin to shrink.
Also, in the past supply chains were built to be more cost effective. Now they must be rebuilt to become more resilient, and that costs money, DeSpirito said. He added that the push toward decarbonization will be a costly initiative.
That means, even if inflation doesn’t spiral out of control, “we’re certainly not going to see those under-2% rates that we saw consistently for over a decade [after the] global financial crisis,” he said. “That means the Fed isn’t going to come to the rescue so easily when we hit speed bumps.”
BlackRock plans to roll out more active ETFs in the future, according to client demand, Aguirre said. The firm said it recognizes that it is lacking in this space but wants to provide the same level of options as it does on its mutual fund side, said Jon Diorio, head of product for BlackRock’s wealth advisor business.
“If someone did want to build a model portfolio with active ETFs as core building blocks, we still have some work to do [and] we’ll focus on building out that lineup,” he said. On the mutual fund side, “if clients want to build a portfolio using our mutual fund whether it’s on the equity or fixed-income side, we think we have a pretty good base.”