(Bloomberg) -- BlackRock Inc. laid out plans for its first mutual fund-to-ETF conversion this week, joining a growing list of asset managers who have made the jump amid a one-way flood of cash between the structures.
The world’s largest asset manager will flip the more than $700 million BlackRock International Dividend Fund into an exchange-traded fund in November, according to a filing with the Securities and Exchange Commission this week.
Asset managers of all stripes have been looking for ways to stem the losses in their mutual fund lineups as investors continue to favor their low-cost, tax-efficient cousins. BlackRock aims to join around 70 funds so far — including Dimensional Fund Advisors, JPMorgan Asset Management and Fidelity Investments — that have converted over $100 billion in mutual fund assets into ETFs, according to data compiled by Bloomberg Intelligence’s Eric Balchunas.
“BlackRock’s decision to utilize 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 path to entering the ETF marketplace should be made on a case-by-case basis: sometimes a conversion may be the best choice, whereas in other situations launching a ‘clone’ strategy or an entirely 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, head of Americas for Global Product Solutions at BlackRock, via email. “We continue to see use cases for mutual funds and view ETFs and other investment vehicles as complementary to each other as they often serve different client segments.”
More than $65 billion has exited mutual funds so far in 2024, while ETFs have absorbed more than $250 billion. That follows last year where mutual funds were drained of roughly $656 billion, while ETFs raked 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 was completed roughly 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 ETF share classes of their existing mutual funds. Doing so would give firms an avenue to map the tax efficiency of exchange traded funds onto their mutual funds, potentially stemming outflows.
While awaiting potential multi-share class approval, conversions will likely remain a popular option for issuers.
“It seems to be the trend and this will continue to happen as more investors get comfortable with ETFs,” said Mohit Bajaj, director of ETFs at WallachBeth Capital. “Like any other asset manager, they are doing what they feel will be the best way to retain and grow assets.”
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