BlackRock’s ambitions to extend its dominance into the world of alternative assets have become crystal clear in the past year. It has now unveiled its latest foray — bringing a hedge fund strategy to its exchange traded fund investors.
The world’s largest asset manager has snapped up Global Infrastructure Partners, the planet’s second-largest manager of private infrastructure assets; Preqin, a major private markets data group; and HPS Investment Partners, a private credit manager, as well as sealing a deal with Switzerland’s Partners Group to create model portfolios containing private equity, private credit and real estate funds.
Not content with those bets on alternative investments, BlackRock has now filed to launch an ETF focused on managed futures, a type of hedge fund strategy.
BlackRock would not be the first to offer a managed futures ETF, with a handful of such funds already trading in the US. Most are fairly small, however, and few would bet against BlackRock rapidly coming to dominate the market, assuming it receives regulatory approval to enter the fray.
“I think it’s a big deal that the largest asset manager is further entering the alternatives marketplace,” building on the overnight success it has had with its spot bitcoin ETF, said Todd Rosenbluth, head of research at TMX VettaFi, a consultancy.
“The largest asset manager entering the space is validation for the role managed futures can play and how they can fit into a portfolio,” he added.
Managed futures funds, trend-following “quant” hedge funds run by commodity trading advisers, take both long and short positions in futures contracts linked to equities, bonds, commodities and currencies. As of the third quarter of last year $336bn was invested in the strategy, according to BarclayHedge, a data provider.
This approach potentially allows them to make money even when markets fall — as long as there is a clear trend for them to follow.
As a result they have historically shone when public markets have been out of favour, proving their mettle as a potential hedge.
During the three worst years for a 60/40 portfolio of equities (based on the FTSE All World Index) and bonds (the Bloomberg Global Aggregate), both measured in dollar terms, so far this century, managed futures funds posted double-digit gains.
In 2008, when a 60/40 portfolio lost 25.5 per cent, according to FT calculations, the SG CTA Index gained 13.1 per cent, according to figures from SG Prime Service and Clearing. In 2022, when a 60/40 basket lost 17.4 per cent the SG index gained 20.2 per cent, while in 2002, the corresponding figures were -11 per cent and +12.9 per cent.
The situation is often reversed when public markets are performing strongly, though, with the SG index falling in 2009 and 2023, two years when a 60/40 portfolio generated double-digit returns, and drifting in some other relatively directionless years.
Managed futures ETFs held just $2.45bn at the end of 2024, according to data from Morningstar, although that was $1bn higher than 12 months earlier, almost entirely due to net inflows of $991mn.
BlackRock is not the only large asset manager eyeing up the sector, though, with Invesco also having filed to launch an ETF in the US.
Both groups declined to comment for this story but Bryan Armour, director of passive strategies research, North America at Morningstar, believed BlackRock’s impending expansion into the sector would be good for both investors and managed futures ETFs in general.
“There is a valid use case for managed futures,” Armour said. “The one flaw in 60/40 is inflation risk, as we saw in 2022. Managed futures can better solve for that than bonds and stocks.”
“I would expect broad adoption,” as BlackRock raises awareness of the concept, Armour added. “BlackRock might take a big slice of the pie but the size of the pie will grow.”
Andrew Beer, founder of DBi and co-manager of the iMGP DBi Managed Futures Strategy ETF (DBMF), at $1.3bn by far the largest such vehicle, was also optimistic about sector-wide uptake, given that BlackRock’s Aladdin risk analytics and portfolio management software is widely used by financial advisers and could potentially be tweaked to include managed futures.
“For a small asset class BlackRock is a potential kingmaker. More than anyone else they are the opinion leaders around what should be included in models across the wealth management space,” Beer said.
“The entire managed futures ETF space is less than $3bn out of the $10tn-plus ETF world [in the US]. BlackRock recognises that this is one of the greenfield opportunities in the asset management business.
“With BlackRock trying to corner the market for private assets in the wealth management space, why wouldn’t they also try to do the same with a liquid strategy that has provided more diversification value to loyal investors than virtually any other one?” Beer added.
The ETF, if approved by the US Securities and Exchange Commission, would be likely to launch in February. Judging by the portfolio managers named in the filing, it will be managed by BlackRock’s San Francisco-based systematic investing team.
The team, which currently manages $304bn, takes a data-driven approach, utilising machine learning, artificial intelligence and proprietary data, including 300 “unstructured” data sources, to construct portfolios.
Rosenbluth said the timing of BlackRock and Invesco’s proposed launches “is interesting”, given managed futures funds’ reputation for providing valuable diversification when markets sell off.
“We had just come off another good year for the stock market. Who knows if we will see more volatility in 2025 and need another product,” he said.
“The best time to buy insurance is when you are healthy,” said Armour. “People held managed futures during the 2010s and finally they just jettisoned it from their portfolios, and in 2022 it would have been massively helpful. It’s often the calm before the storm when you should be holding it.”
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