BlackRock’s Rick Rieder Has a New Active Bond ETF. It’s a Sign of the Times.

The investor share class of the $18 billion BlackRock Total Return mutual fund—a Morningstar three-star gold-medal fund—has delivered annualized total returns of 3.97% over 15 years, beating 63% of its intermediate core-plus bond peers, according to Morningstar.

Active bond ETFs are often cheaper than their mutual fund sibling or other active bond funds. The BlackRock Total Return ETF has a net expense ratio of 0.38%, compared with 0.76% for the investor share class of its sister mutual fund. Lower costs are one reason why investors are flocking to ETFs. Another is easy intraday trading.

This year has seen several “star” fund managers add ETFs to their résumés. Pimco,
Franklin Templeton,
and
T. Rowe Price
are among the firms that have launched ETFs with well-known managers.

The BlackRock Total Return ETF is a diversified core bond strategy that the firm says “seeks to uncover alpha opportunities across the fixed income universe and deliver consistent, attractive returns” across all market cycles.

David Rogal, lead portfolio manager of the BlackRock Total Return ETF, said the strategy aims to provide clients with a well-diversified portfolio that is built to navigate different market cycles “by identifying the big macro trends impacting markets and combining that with bottom-up security selection.” 

The strategy uses a broad multisector approach, with substantial investment flexibility, helping to manage downside risk, while providing an income cushion and broader portfolio diversification over the long-term, he added.

Rieder said that with more than 60,000 global fixed-income securities, it is tough for retail investors to differentiate between the winners and losers. That’s what makes active management compelling for bond portfolios.  

The world’s largest asset manager, with $9.1 trillion in assets, said the launch reinforces the firm’s commitment to ETFs, which offers investors liquidity and tax efficiency.

Last week rival Vanguard launched its second active bond ETF—the Vanguard Core-Plus Bond ETF. A third—the Vanguard Core Bond ETF—is expected to launch by the end of the year. 

Active ETFs have exploded this year. Ryan Jackson, manager research analyst for passive strategies at Morningstar Research Services, says that in each calendar year since 2018, active ETFs pulled in at least $25 billion and notched an organic growth rate north of 30%. At the end of November, they boasted about $500 billion in assets—nearly triple the amount from November 2020.  

“The rapid growth of active ETFs has proved that ETFs are no longer limited to index management,” said Dominik Rohe, head of Americas ETF and index investments business at BlackRock.  

Write to Lauren Foster at [email protected]