(Bloomberg) — BlackRock Inc . unveiled plans for its first mutual fund-to-ETF conversion this week, joining a growing list of asset managers that have made the jump amid a one-way flood of money between the structures.
The world's largest asset manager will return more than $700 million BlackRock International Dividend Fund in an exchange-traded fund in November, according to a PRESENTATION with the Securities and Exchange Commission this week.
Asset managers of all stripes have been looking for ways to stem losses in their mutual fund lineups as investors continue to favor their low-cost, tax-efficient cousins. BlackRock aims to join about 70 funds so far — including Dimensional Fund Advisors, JPMorgan Asset Management and Fidelity Investments — that have converted more than $100 billion in mutual fund assets to ETFs, according to data compiled by Eric Balchunas of Bloomberg Intelligence.
“BlackRock's decision to use the mutual fund-to-ETF conversion process further legitimizes this as a realistic option for asset managers considering how to enter the ETF market,” said Amrita Nandakumar, president of Vident Asset Management. “The way to enter the ETF market must be done on a case-by-case basis: sometimes a conversion may be the best solution, while in other situations launching a 'clone' strategy or a completely new strategy makes more sense.”
BlackRock — which oversees $22 billion in assets across 39 active ETFs — said the change was in response to client demand.
“Fee-based advisors are increasingly using active ETFs for their efficiency and flexibility in strategies, including as building blocks in model portfolios,” said Jessica Tan, Americas head of Global Product Solutions at BlackRock , via email. “We continue to see use cases for mutual funds, and we see ETFs and other investment vehicles as complementary to each other as they often serve different customer segments.”
More than $65 billion has flowed out of mutual funds so far in 2024, while ETFs have absorbed more than $250 billion. That follows last year, when mutual funds drained roughly $656 billion, while ETFs pulled in $578 billion, Investment Company Institute data compiled by Bloomberg show.
The tide has been shifting as more investors embrace the easier-to-trade and tax-friendly structure of ETFs, even before the first conversion takes place ENDED approximately three years ago.
In addition to pure mutual fund-to-ETF conversions, issuers — such as Dimensional and Morgan Stanley — have asked the SEC for permission to list ETFs divide the classes of their existing mutual funds. Such a move would give firms a way to map the tax efficiency of exchange-traded funds into their mutual funds, potentially preventing outflows.
While the potential adoption of the multi-share class is awaited, conversions are likely to remain a popular option for issuers.
“It seems to be the trend and it will continue to happen as more investors become comfortable with ETFs,” said Mohit Bajaj, director of ETFs at WallachBeth Capital. “Like any other asset manager, they are doing what they think will be the best way to hold and grow assets.”
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