BlackRock Plans ETF Classes for Five Mutual Funds
BlackRock, Inc. (BLK) has submitted a filing with the Securities and Exchange Commission to introduce ETF share classes for five of its active mutual funds. These funds, with combined assets of nearly $55 billion, concentrate on high-yield bonds, dividend-paying equities, and municipal debt investments.
Why ETFs?
This strategic shift responds to the rising investor preference for ETFs. Unlike mutual funds, which calculate pricing once daily after markets close, ETFs trade continuously throughout the day similar to stocks. Additionally, they generally distribute fewer taxable capital gains to shareholders.
“Investors increasingly want to access investments through the vehicle that best fits their needs and preferences,” said Elise Terry, co-head of the Americas for global product solutions and head of Americas iShares at BlackRock.
The Five Funds
The funds involved are:
- BlackRock High Yield Portfolio (BHYIX): The largest fund, with $27.4 billion in assets, focuses mainly on high-yield bonds.
- BlackRock Equity Dividend Fund (MADVX): This $20.3 billion fund targets high-quality, dividend-paying U.S. companies.
- BlackRock Strategic Municipal Opportunities Fund (MAMTX): This $3.4 billion fund holds municipal bonds across the country.
- BlackRock California Municipal Opportunities Fund (MACMX): With $2.5 billion in assets, this fund primarily holds California municipal bonds.
- BlackRock New York Municipal Opportunities Fund (MANKX): The smallest fund, with $1.1 billion, focuses on New York municipal bonds.
Four of these funds were established in the late 1980s, preceding the debut of the first U.S.-listed ETF by several years. This transition to ETF share classes enables investors to access these established strategies via a more flexible and tax-efficient vehicle.
iShares Expertise
BlackRock’s iShares division, with over 20 years of ETF management experience, will oversee the new share classes. iShares ranks as the third-largest active ETF issuer globally, with nearly $190 billion in assets under management.
Fund Composition
Each fund’s institutional share factsheets from June 30 outline the holdings for the planned ETF share classes. The BlackRock High Yield Portfolio (BHYIX) invests mainly in high-yield bonds, which offer higher interest due to lower credit ratings from issuers. BHYIX carried a 30-day SEC yield of 6.19%, according to its factsheet. Its largest holding was an ETF: the iShares Broad USD High Yield Corporate Bond ETF (USHY), at 3.58%.
On the equity side, the BlackRock Equity Dividend Fund (MADVX) has $20.3 billion in assets, as detailed in its factsheet. It seeks high-quality, mostly U.S. companies that pay dividends and may increase them over time. Information technology led the portfolio at 16.32%, followed by health care at 15.62% and financials at 15.15%, per the factsheet.
Municipal bonds, issued by states and cities for local projects, make up the remaining portion of the lineup. Their interest is generally exempt from federal income tax. The BlackRock Strategic Municipal Opportunities Fund (MAMTX) invests nationwide, with $3.4 billion spread across 561 holdings, per its factsheet. Two others focus on a single state. The BlackRock California Municipal Opportunities Fund (MACMX) held 87.25% of its $2.5 billion portfolio in California bonds, according to its factsheet. The BlackRock New York Municipal Opportunities Fund (MANKX) goes further, keeping 93.92% of its portfolio in New York bonds.
Four of the five funds launched between 1985 and 1987, as reported in their factsheets. That was years before the first U.S.-listed ETF, the SPDR S&P 500 ETF Trust (SPY), began trading in January 1993.
